Pakistani rupee hits all-time low after interest rate cut

KARACHI: The Pakistani rupee has dropped to its all-time low against the US dollar in the interbank market on Thursday, after the central bank slashed its key rate by 1.5 percent to shield the economy from the impacts of the coronavirus outbreak.
The rupee declined by 3 percent to Rs167 against the greenback, as global demand for the US currency is increasing, Exchange Companies Association data shows.
The State Bank of Pakistan (SBP) in an emergency move on Tuesday cut its policy rate by a further 150 basis points to 11 percent, after cutting it by 75 basis points on March 17. The move brought the cumulative monetary easing over the past week to 225 basis points.
Financial experts link the rupee depreciation with global trends, outflows of foreign funds from Pakistan’s capital market, and domestic trade contraction.
“The US currency has appreciated by 5-25 percent against other currencies of emerging markets while our currency has depreciated 6 percent in March. There is outflow of hot money and our trade and remittance are also disturbed,” Muzamil Aslam, senior economic and financial analyst, told Arab News.
Foreign investors have withdrawn $1.8 billion from Pakistan’s capital market since July 2019. On Wednesday, no investment was made in government papers but an outflow of $80 million was recorded, State Bank of Pakistan data showed.
Pakistan attracted $4.1 billion in its equity and debt market, the major share of inflows or hot money was invested in short-term government papers as the short term papers of three months maturity offered ate as high as 13.38 percent returns.
Analysts expect the rupee will stabilize as the government has decided to stop importing petroleum products in April. Pakistan has spent $8.23 billion petroleum product imports between July 2019 and February this year, according to the Federal Bureau Statistics.