Rupee Dips, Hits 3-Month Low: Currency Nears Record-Low Territory

The Pakistani rupee‘s downward spiral continues as it recently hit a three-month low, inching perilously close to its all time record low of Rs299 against the US dollar. As per the latest data from the State Bank of Pakistan (SBP), the currency depreciated by 0.29%, or Rs0.86, settling at Rs 295.78 against the greenback.

The primary drivers behind this depreciation are the strengthening of the US dollar to a two month high on the global stage and an anticipated surge in demand for the dollar within Pakistan due to mounting import payments. If not for an improvement in the country’s foreign currency reserves and a decline in global oil prices, the rupee’s decline might have been even lower.

During the week concluding on August 11, 2023:

The SBP’s foreign exchange reserves registered a slight increase of $12 million, reaching $8.05 billion. This improvement offers a glimmer of hope amidst the turbulence the rupee is experiencing.

The rupee’s recent change can also be attributed to recent political changes. The currency had experienced an unchanged closure at Rs294.92/$ on Thursday, following a brief fall of just over 2% during the preceding two days. Coinciding with the transition to a new caretaker government.

The open market presented a similar story:

With the rupee declining by 0.33% (Rs1) to Rs302/$. This discrepancy between interbank and open market exchange rates highlights a significant gap, surpassing the 1.25% difference recommended by the IMF under their new $3 billion loan program.

The recent surge of the US dollar globally was triggered by the US central bank’s hints at a potential interest rate hike. Pakistan’s reopening of imports adds to the demand for the US dollar, further dampening the rupee’s prospects in the coming months.

Despite these challenges:

The Real Effective Exchange Rate (REER) for the Pakistani rupee showed signs of improvement, reaching a six-month high of 91.58 in July from the previous month’s 87.72. This uptick can be attributed to the bolstered foreign exchange reserves resulting from an IMF loan tranche and deposits from friendly nations, totaling $4.2 billion.

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The potential for rupee appreciation is contingent upon the balance between the supply and demand of the US dollar within the national economy. As the nation navigates economic fluctuations and policy changes, the fate of the rupee remains in a delicate balance.