Pakistani currency continued to cede ground for the fifth consecutive working day on Friday, reaching the two-week low above Rs280.50 to a dollar in inter-bank market owing to rising demand for the greenback.
According to State Bank of Pakistan’s (SBP) data, the rupee dropped 0.17%, or Rs0.48, and closed at Rs280.57 against the greenback. The currency has cumulatively decreased 0.52%, or Rs1.45, in the past five days.
The latest drop came after the central bank reported that Pakistan’s foreign exchange reserves dropped $220 million to $7.49 billion in the week ended October 20, 2023. It proved true the belief that demand for the greenback had gone up compared to its inflow.
Earlier, the rupee recovered a staggering 11%, or over Rs30, to Rs276.83/$ over four weeks, which coincided with the government’s crackdown on foreign currency smugglers and hoarders. Consequently, the supply of dollars through official channels surpassed their demand.
International media recently quoted Goldman Sachs as saying that Pakistani rupee’s recovery would be short-lived amid rising demand for dollars to pay for imports and repay foreign debt.
Market talk suggests that the currency is struggling to stabilise around Rs280/$ ahead of the International Monetary Fund (IMF)’s first review next week under the $3 billion standby arrangement.
The global lender has pressed Pakistan to maintain a market-based exchange rate while keeping the difference between rupee-dollar rates in inter-bank and open markets at a maximum of 1.25%.
Contrary to the downturn in inter-bank dealings, the currency improved 0.17%, or Rs0.50, to Rs281.50/$ in open market, according to the Exchange Companies Association of Pakistan.
Accordingly, the spread between the two currency exchange markets narrowed to 0.33%, or Rs0.93, which was well within the IMF-prescribed ceiling of 1.25% (around Rs4 at current prices).
Published in The Express Tribune, October 28th, 2023.