Daily Times

Rupee plunged to a historic low on Tuesday, depreciating by 0.63% against the US dollar in the interbank market due to an easing in import restrictions that has lifted demand for the dollar.

The local currency fell by 1.88 against the greenback and closed at 299.01 at the end of the day’s trading, according to the State Bank of Pakistan (SBP).

Its previous record low was 298.93, which was hit on May 11.

In the open market, the dollar was changing hands for Rs306, according to the Exchange Companies Association of Pakistan. The local currency closed at Rs297.13 on Monday, rising by Rs1.35 from last week’s close of Rs295.78, according to data shared by the Exchange Companies Association of Pakistan (ECAP).

Pakistan imposed import restrictions from 2022 to stem outflows from its shrinking foreign reserves. The removal of those restrictions beginning in June was a condition of a $3 billion International Monetary Fund (IMF) loan programme to help the crisis-ridden economy.

On May 11, it logged a record closing low of 298.93. Financial consulting firm Alpha Beta Core chief executive Khurram Schehzad said the IMF’s condition for its bailout to ensure open market-interbank parity had resulted in the rupee’s “excessive” weakening. “As I said earlier, the policy of following open market parity (with 1.25pc prem) was flawed, thus difficult to sustain,” he said. “This has been witnessed in [how] the open market [is] driving the formal market (interbank mkt), and excessively weakening the PKR.”

Tahir Abbas, head of research at Arif Habib, a Karachi-based brokerage company, told Reuters that he expected the rupee to trade between 295 and 305 to the dollar for the time being.

“The declining trend is mainly attributable to the ease off in the import restrictions coupled with clearance of backlog for goods and services,” he said.

He added that multinational corporations were able to repatriate some profits, furthering rupee outflows.

Head of research at Arif Habib Tahir Abbas said he expected the rupee to trade between 295 and 305 to the dollar for the time being. “The declining trend is mainly attributable to the ease off in the import restrictions coupled with clearance of backlog for goods and services,” he said. He added that multinational corporations were able to repatriate some profits, furthering rupee outflows.

Commenting on the development, AA Commodities Director Adnan Agar told a private TV channel that the rupee depreciation is mostly due to political reasons as there are fears of a delay in the general elections, consequently delaying the fulfilment of commitments from the International Monetary Fund (IMF) and other global lenders. “When the political uncertainty continues, with a caretaker setup in power, questions like who will invest and lend the money to the country arise,” he said.

Agar added that this is the reason for the rupee’s losses and it will remain the same until or unless there is clarity on the political situation.