The rupee has had its worst month since 1972.
The Pakistani rupee had its worst month since 1972, according to The News, as a result of a dollar scarcity and concerns over a delay in an International Monetary Fund (IMF) rescue programme.
The local currency fell about Rs34.5, or more than 14 percent, versus the US dollar in July, the worst monthly decrease in history due to fears of a default as foreign currency reserves plummeted.
It should also be highlighted that it is the worst monthly fall globally after Ukraine’s currency.
The government is attempting to avert a repeat of Sri Lanka’s default this year, as heightened political uncertainty following the Punjab by-elections cast doubt on its ability to secure its IMF loan tranche.
Ankur Shukla, an analyst for Bloomberg Economics in Mumbai, stated, “What’s causing the recent drop?” Politics, according to the finance minister. The governor of the central bank cites the dollar’s rise.
“The main motive is more straightforward: worry that the country will not receive IMF assistance quickly enough to prevent going into default like Sri Lanka.”
The sharpest drop in the currency reflects mounting concerns about the country’s poor foreign cash position. The State Bank of Pakistan’s (SBP) foreign exchange reserves have declined by $7.811 billion since February to $8.575 billion in July, enough to cover about six weeks of imports.
Meanwhile, the current account deficit increased to $17.4 billion in July-June,(the fiscal year 2021-22) up from $2.8 billion the previous year. This increase in the current account difference is owing to large imports during a period of high commodity prices, particularly for oil.
The rupee and the country’s dollar-denominated bonds have been battered as market participants are concerned that political uncertainty may postpone the country’s IMF rescue. Pakistan is aiming to assuage fears that it may follow Sri Lanka into default this year by getting billions of dollars from the Washington-based lender and other countries such as China and Saudi Arabia.
In a research statement, Arif Habib Limited noted that political concerns and shifting paradigms eroded foreign investors’/creditors’ confidence, adding significantly to the rupee’s depreciation.
“Although we believe the rupee still has an intrinsic depreciation tendency in the long term, we expect some stability to be restored in the short term.” We attribute this short-term stability to inflows from bilateral and multilateral creditors, IMF inflows, and strengthening of some macroeconomic factors, as well as SBP efforts to limit market speculation.”
However, rumours of the country’s army leader requesting the US to play a role in expediting $1.2 billion in additional money for Pakistan, as well as hopes of early elections, have calmed investors’ nerves.
The rupee recovered some of its losses on Friday, closing at 239.37 per dollar. On Thursday, it closed at 239.94. On a day-to-day basis, the rupee rose 0.24 percent.The local currency recovered after falling by 13.31 percent in the previous ten trading sessions. In the kerb market, however, the rupee remained under heavy pressure. It fell Rs4 to close at 244 versus the US dollar.
