The Pakistani rupee hit a new record low on Wednesday amid ongoing political uncertainty and Islamabad’s inability to revive the crucial International Monetary Fund (IMF) programme.
According to the State Bank of Pakistan (SBP), the rupee lost Re0.56 (or 0.19%) and ended the day at 287.85. The exchange rate had reached 288.25 to the dollar earlier in the day.
This comes a day after the rupee dropped by Rs2.25 or 0.8%, reaching a new historic low of 287.29 in the interbank market.
The Monetary Policy Committee (MPC) of the SBP declared it was raising the policy rate by 100 basis points (bps) to an all-time high level of 21% to rein in rising inflation in a significant development that occurred after markets closed on Tuesday.
It did so in the hope that monetary tightening would aid in achieving the medium-term inflation goal, but this belief may be in jeopardy due to domestic political unpredictability and general financial instability.
Multiple factors are driving the negative trajectory of the Pakistani rupee against the US dollar, Zafar Paracha – General Secretary, of the Exchange Companies Association of Pakistan (ECAP) – told.
“The primary reason is the delay in starting the IMF programme. On this front, we have not seen any encouraging developments, he said.
“Secondly, with stakeholders still at odds, the internal political climate is unstable. Additionally, the nation’s exports, remittances, and foreign currency reserves all continue to fall, harming market sentiment.
He added that recent assessments of Pakistan from the World Bank and Asian Development Bank were also having an effect on the market.
Exports, remittances, and Foreign Direct Investment (FDI) have not grown, according to Paracha, despite the currency depreciation.
“The primary reason is the delay in starting the IMF programme. On this front, we have not seen any encouraging developments, he said.
“Secondly, with stakeholders still at odds, the internal political climate is unstable. Additionally, the nation’s exports, remittances, and foreign currency reserves all continue to fall, harming market sentiment.
He added that recent assessments of Pakistan from the World Bank and Asian Development Bank were also affecting the market.
Exports, remittances, and Foreign Direct Investment (FDI) have not grown, according to Paracha, despite the currency depreciation.
Exports, remittances, and Foreign Direct Investment (FDI) have not grown, according to Paracha, in spite of the currency depreciation.
Furthermore, he added, “The government’s bad policies are to blame for the currency underground market’s continued prosperity.
Paracha emphasised that the government’s choice to place import restrictions was the best course of action given the present circumstances. However, it gave importers the freedom to organise their financing, which gave rise to the grey market.
Exchange Companies (ECs) are not permitted to host the exporters, however. To satisfy the importers’ financial needs, the government ought to have provided an official window.
Exports, remittances, and Foreign Direct Investment (FDI) have not grown, according to Paracha, despite the currency depreciation.
“We can provide $500 million to importers every month,” said Paracha.
On a global scale, the US dollar was stuck close to two-month lows on Wednesday as a result of weak economic statistics that supported the notion that the Federal Reserve is nearing the end of its tightening cycle.
After falling 0.5% over night, the dollar index, which compares the value of the dollar to six other currencies, softened to 101.43, a new two-month low. It was at 101.53 last.
The latest production cut goals set by the OPEC+ producer alliance and forecasts of falling US crude inventories both helped to push up oil prices, a key indicator of currency parity, higher on Wednesday.
