During early morning trading on the interbank market on Tuesday, the US dollar reached Rs212 versus the local currency, extending its record-setting streak.
According to the Forex Association of Pakistan (FAP), the rupee fell by more than Rs2 to an all-time low of Rs212 per dollar, from Rs209.96 on Monday’s close. The dollar appreciated by Rs1.21 yesterday, a pattern that has persisted for almost a week.
According to Mettis Global, a web-based financial statistics and analytics service, the rupee suffered a massive loss of Rs6.4 during the course of five straight sessions over the previous week.
Komal Mansoor, the chief of research at Tresmark, stated that it appeared as though the country currently relied only on an IMF bailout.
“There is some support for the currency around the present level of 211, but we anticipate a daily decline of the rupee until the IMF staff-level agreement is reached,” she said.
The IMF loan facility has been stalled since the beginning of April as negotiations with the international money lender remain inconclusive, with the lender expressing reservations over fuel and energy subsidies introduced by the previous PTI government and now over targets set by the new government for the upcoming fiscal year.
In July 2019, Pakistan agreed on a 39-month, $6 billion Extended Fund Facility with the IMF, however, the Fund halted the delivery of approximately $3 billion after the previous administration reneged on its pledges and announced gasoline and energy subsidies.
Yesterday, Finance Minister Miftah Ismail expressed optimism that an agreement with the IMF would be achieved “within one or two days” for the reinstatement of the Extended Fund Facility (EFF).
Previously, media sources stated that Islamabad was “seeking Washington’s cooperation” to renew its Extended Fund Facility (EFF) with the IMF. As the IMF’s largest shareholder, the United States has enormous influence over its decisions.
Depleting foreign exchange reserves “puts pressure” on the economy.
FAP chairman Malik Bostan attributed the rupee’s “pressure” on the fast diminishing foreign exchange reserves.
“After a long period, foreign exchange reserves have dropped to single digits, causing market concern,” he said.
SBP reports that Pakistan’s reserves have decreased by another $234 million, bringing the total to just below $15 billion. The central bank holds little under $9 billion of these reserves.
Boston stated that demand for the dollar is high because of the approaching Haj season. “This year, almost 400 000 Pakistanis are participating in Hajj and purchasing cash. This hurts the local currency.”
There are rumors about suspending LCs.
Uncertainty and rumors that banks had ceased opening letters of credit had gripped the currency market (LCs)
The central bank, however, denied such a circumstance. “State Bank has not restricted banks’ ability to make important payments. Even as of today, around $200 million in import payments had been processed, according to the SBP’s chief spokesman, Abid Qamar.
In the meanwhile, the SBP has demanded prior clearance before the establishment of letters of credit or the registration of contracts for certain types of imports, including automobiles (CKD), mobile phones, and some types of machinery. He explained that these instructions were issued on May 20, not today.
The SBP released a circular on May 20 in response to the federal government’s decision to prohibit imports of luxury and non-essential products. The decision was intended to reduce dollar consumption while protecting the economy from imported inflation. The country’s import bill for the prior year had already surpassed $70 billion.
