Dollar gains 58 paisas against Pakistani rupee

Pakistani rupee on Tuesday lost more than 58 paisas or 0.8 per cent in the interbank market to reach as low as Rs167 before settling at Rs166.50 against the dollar. 

The exchange rate has been extremely volatile over the last few weeks as fears of lower-than-projected foreign exchange inflows into the economy have gripped the currency markets due to the impact of Covid-19 on global trade, remittances and foriegn direct investment. 

In the last week alone, the rupee lost nearly 2.5pc against the greenback.

However, fears over depletion of forex reserves may be unfounded as Pakistan recently secured debt relief worth $2.4 billion under the Debt Service Suspension Initiative of the World Bank, International Monetary Fund and the G-20 countries. 

During the month, the rupee has lost 2.5pc. The dollar on Tuesday (June 23) was trading at Rs166.50 compared to Rs161.30 on May 27.

However, the slight improvement in the foreign remittances and substantial increase in foreign direct investment during the calendar year will also support the local currency. 

The foreign exchange reserves are also expected to increase given the loans secured from the Asian Development Bank, Asian Infrastructure Investment Bank, International Monetary Fund and the World Bank. These inflows, although aimed at mitigating the impact of coronavirus on the affected livelihoods, will improve the overall forex reserves.

Further, the release of the second and third tranches under the IMF’s Extended Fund Facility will also help bolster the depleting reserves and bring stability to the volatile exchange rate. China is also expected to lend another $1.4bn on June 26. 

The volatility in rupee-dollar parity can be attributed to the State Bank of Pakistan’s (SBP) adoption of the market-based exchange. In the past, Pakistan has kept the exchange rate artificially stable to maintain foreign exchange reserves.

The 2.5pc fall in rupee’s value against the dollar in the month of June will increase the country’s debt burden by Rs440bn.