KARACHI: The rupee’s honeymoon time appeared to be over on Monday as the US dollar reversed its trajectory after seven days of sustained depreciation against the local currency.
Currency dealers in the interbank market and the State Bank of Pakistan (SBP) reported the dollar to close at Rs 182.54, up 99 paise from Saturday’s Rs 181.55.
“The greenback will continue to appreciate in the coming days as rising international oil prices strengthen the US dollar against all currencies,” said Abid Sattar, a forex trader in the interbank market.
Currency experts said the political crisis in Islamabad was the real cause of a sharp and rapid rise in the price of the dollar, which peaked at Rs 188.18 on April 7. However, the rupee’s rebound was a temporary phenomenon after the dollar’s abolition in the speculative environment. The rupee saw its biggest historical recovery last Friday from Rs3.50 to Rs184.68 from Rs188.18 against the dollar.
Ends seven-day losing streak due to high demand from importers
He said the ongoing war between Russia and Ukraine has strengthened the dollar while destroying small economies like Sri Lanka.
Pakistan is also feeling the pinch of high oil and other commodity prices in the international market, which have pushed up the country’s import bill as the trade deficit widened 49 percent in FY22 so far.
“China’s expected $2.4 billion loan extension may provide temporary support to the exchange rate, but there is no chance of recovering the rupee for an extended period,” said Aamir Aziz, who exports finished textile products to Europe.
He said what was even more deadly was the rise in shipping company prices, which was eating away at exporters’ profits. “Shipping lines have increased freight costs ninefold in the last two years,” he noted.
“Against the backdrop of expensive freight, high oil and commodity prices, it is very difficult to compete in world markets,” he said, adding that high dollar demand from importers would keep the local currency under pressure.
The ousted government’s external balance was the weakest in FY22 as both trade and current account deficits widened to unprecedented levels. The current account deficit widened to $12 billion in July-February, while the State Bank of Pakistan’s reserves fell to $10.85 billion as of April 8.
Despite record inflows of remittances in March ($2.8 billion), the country still needs up to $15 billion to meet external commitments, mainly debt service on short-term commercial loans purchased by donor agencies and countries.
Published in Dawn, April 19, 2022