The Pakistani rupee fell steadily for the 12th consecutive business day, hitting a five-week low of over Rs 286 against the US dollar in the interbank market on Tuesday.
This decrease is attributed to increased demand for foreign currency and speculative activity. There have been reports of the re-emergence of black currency markets in areas bordering Afghanistan, where the exchange rate is more favorable than official markets.
According to State Bank of Pakistan (SBP) data, the rupee has depreciated by 0.38%, or Rs 1.09, to close at Rs 286.38 against the US dollar. In the last 12 working days, cumulative losses for the currency reached 3.33%, or Rs9.55.
In the open, the rupee fell 0.17% or Rs 0.50 to close at Rs 287.50 per US dollar, according to the Exchange Association of Pakistan (ECAP).
Malik Bostan, Chairman of ECAP, noted that the currency’s recent downward trend was expected as subdued demand for the US dollar temporarily weakened the rupee. He pointed out that the rupee had strengthened by 11% in the previous six weeks, reaching a three-month high of Rs 276.83 per US dollar by mid-October 2023.
Bostan predicted that the rupiah would resume an upward trend once pent-up demand subsides, as traders who had been waiting for better prices to buy the US dollar would start to acquire it.
Meanwhile, exporters reduced their US dollar sales in anticipation of further depreciation of the rupee as delaying the sale would yield higher profits.
ECAP Secretary General Zafar Paracha reported the resurgence of black currency markets in Peshawar, Khyber-Pakhtunkhwa, where US dollars are offered at higher rates. Authorities have been on notice of this development as earlier crackdowns on illegal markets helped the rupee gain 11% in September-October 2023.
In addition, some banks are speculating on rupee depreciation to boost profits in the rupee-dollar swap business, prompting investors to acquire more foreign currency.
Ongoing talks between the International Monetary Fund (IMF) and Pakistan on the next installment of $700 million under the Fund’s $3 billion loan program also weighed on the rupee’s performance. Pakistan is seeking help from the IMF to tackle a fiscal deficit of about $6.5 billion in the 2023-24 fiscal year as global financial institutions have not provided pledged funding on time. Raising new debt through Eurobonds and Sukuk in international trade markets has become expensive.
Published in The Express Tribune, November 8u2023.
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