Pakistani currency touched one-month low at Rs154.5 against the US dollar in the inter-bank market on Tuesday in the wake of decisions taken by the federal and provincial governments to impose stricter restrictions to contain the spread of third wave of Covid-19.
The increased restrictions may impact domestic production and export earnings as well as lead to an increase in the country’s reliance on imported goods. Demand for foreign currency is already on the rise with imports touching almost a three-year high at $5.66 billion in March 2021.
With a fresh drop of Rs0.36 on Tuesday, the rupee has depreciated a cumulative Rs1.75 (or 1.15%) in the past two weeks or since touching a 22-month high of Rs152.75 against the greenback on April 12, according to the State Bank of Pakistan (SBP).
Earlier, the rupee had gained 9.3% or Rs15.68 in the prior seven months since hitting a record low of Rs168.43 on August 26, 2020.
“The second and third waves of Covid-19 pandemic in different parts of the world have played a role in pulling down the rupee,” Exchange Companies Association of Pakistan (ECAP) Secretary General Zafar Paracha said while talking to The Express Tribune.
He said that the pandemic and related lockdown may increase Pakistan’s reliance on import of goods, especially of food items. Besides, the country’s imports were already on the rise, led by food items, energy supplies, machinery and cars.
“Higher import demand results in an increase in the requirement of foreign currency compared to its short supply,” he added.
Paracha said that the supply of foreign currencies was slow in the market on Monday and Tuesday. “Pakistan does not import dollars from Saturday to Tuesday every week. New supplies come in exchange for export of other foreign currencies to Dubai like Saudi riyal and UAE dirham.”
He anticipated that the rupee may stabilise somewhere around Rs155 to the US dollar soon and it might stay there for a longer period.
“Rupee above Rs155 makes Pakistan’s exports uncompetitive. For this reason, the rupee has been depreciating since touching the 22-month high of Rs152.75 a couple of weeks ago,” he said.
The health crisis has worsened in Punjab and Khyber-Pakhtunkhwa, meanwhile, the Sindh government has decided to impose stricter curbs with effect from Thursday (April 29). Paracha expected the rupee to not drop below Rs155 as workers’ remittances had remained strong above $2 billion a month for the past 10 months. Inflows touched an eight-month high of $2.77 billion in March ahead of the holy month of Ramazan.
A high official of the central bank said the other day that remittances might increase further ahead of Eidul Fitr, which would fall in mid-May. Besides, exports also improved slightly in March and overall in the first nine months of current fiscal year.
Published in The Express Tribune, April 28th, 2021.
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