KARACHI (National Times)- The rupee slumped on historic low on Tuesday bearing the weight of the country’s economic outlook, rising political uncertainty, and an impasse with the International Monetary Fund (IMF) over seventh review talks.
According to data released by the State Bank of Pakistan (SBP), the local currency dropped to an all-time low of Rs179.22 against the US dollar in the interbank market, posting a loss of 0.13%.
The rupee had maintained a downward trend for the past 10 months. It has lost 17.69% (or Rs26.95) to date, compared to the record high of Rs152.27 recorded in May 2021.
The country’s political temperature heated up after the Opposition parties moved a no-confidence motion, seeking the ouster of Prime Minister Imran Khan. Pakistan and the IMF’s seventh review talks for the release of the next loan tranche remained inconclusive, following the breaches committed by the government on different fronts.
Moreover, mounting external concerns also compelled the domestic currency to lose ground.
With a fresh decline of 0.13%, the Pakistani rupee has depreciated by 13.76% (or Rs21.68) since the start of the current fiscal year on July 1, 2021, data released by the central bank revealed.
Arif Habib Limited Head of Research Tahir Abbas said: “Volatility in commodity prices tagged with expectations of higher current account deficit is the reason for the decline in Pakistani rupee value.”
“While it seems, the IMF will be prescribing stringent measures to curtail the twin deficits by increasing interest rates and lowering money supply, they may also be prescribing, although less likely, a weaker Rupee,” Tresmark said.
“Till date, the central bank has defended the 180 per US dollar figure, and breaching this level may take it to the 185-188 per US dollar. In defence of a stable rupee, it should be argued that the rupee is still undervalued in REER [real effective exchange rate] terms and any further weakness may have a spiralling inflation effect, which might be the key optic the current government wants to address,” it added.
How much ground the rupee might lose?
Analysts said it all depended on the intensity of the geopolitical conditions. The Russia-Ukraine conflict has continued to take its toll on economies around the world.
Pakistan-Kuwait Investment Company Head of Research Samiullah Tariq said: “The rupee-dollar parity will improve when Ukraine-Russia conflict normalises.”
Meanwhile, Abbas was of the view that the currency market will remain “volatile in the short-term” and the Pakistani rupee will likely drop to “Rs180 against the US dollar.”
Dealers said that the future outlook of the local currency also depends on future trends of commodities in the international market.
If prices do not stabilise, Pakistan would be spending more on the imports of energy and palm oil, resultantly putting pressure on the local currency.
JS Global in their analysis predicts that the local currency will drop to Rs182.8 against the greenback by June end, down by 2% from current levels.
