In a second consecutive day of decline, the Pakistani rupee maintained its downward trend in the inter-bank market, falling 0.08% or Rs0.22 to reach a new one-week low at Rs285.62 against the US dollar. The currency’s depreciation can be attributed to diminishing dollar inflows and an escalating political crisis.
The rupee faced renewed pressure after experiencing a significant drop of nearly Rs7 to around Rs300/$ in the open market on Wednesday. This decline was primarily driven by decreased dollar inflows and the worsening political situation. However, on Thursday, the open market witnessed a slight recovery, with the exchange rate improving to Rs299/$.
The gap between the inter-bank and open market rates has widened to Rs13, an unusual occurrence considering that historically, the difference has remained within the range of Re1 to Rs3. The significant depreciation in the open market can be attributed to individuals’ reluctance to sell their dollar holdings in anticipation of further rupee devaluation.
Simultaneously, there has been a slight increase in the demand for foreign currencies as the Hajj season commences. It is common for people to purchase Saudi riyals and US dollars before undertaking the pilgrimage.
According to data from the State Bank of Pakistan (SBP), the rupee closed at Rs285.40 to a dollar in the inter-bank market on Wednesday, marking a cumulative drop of 0.23% or Rs0.66 over the past two days. Last week, the currency hit an all-time low at Rs299/$.
Market analysts have pointed out that the current account surplus witnessed a massive decline of 42 times month-on-month in April, reaching $18 million. This decline indicates a slowdown in foreign currency inflows in the interbank market. The decrease in the surplus can be attributed to a decline in workers’ remittances and export earnings, coupled with an increase in imports of services.
Despite these challenges, experts believe that the current account balance may record a small surplus or break even due to the government’s continued efforts to curb imports. However, Pakistan’s foreign exchange reserves are critically low at $4.4 billion, leaving the country vulnerable to the risk of debt default if the International Monetary Fund (IMF) loan program remains off track.