KARACHI: Pakistan’s national currency hit another historic low to Rs305 against the US dollar in the interbank market during the mid-day trading session on Wednesday, as currency dealers attributed the steep decline to the rising demand for greenback due to import payments and profit repatriation by foreign firms.
The Pakistani rupee lost its value against the US dollar by Rs1.98 at the start of the day before changing hands at the record low of Rs305.03 in the interbank trade, according to the Exchange Companies Association of Pakistan (ECAP).
It added that the currency had also weakened in the open market where it was hovering around Rs319 versus the greenback.
“The currency remains under pressure and the demand for the greenback continues to rise due to four major factors,” Malik Bostan, ECAP chairman, told Arab News.
“The clearance of around 4,000 containers at ports, permission of import of non-essential items, repatriation of profits by foreign companies and payments to the airlines are among the key reasons for continued pressure on the rupee,” he explained.
Opening up imports and adopting market-based exchange rates were among some of the conditions imposed by the International Monetary Fund (IMF) before releasing $3 billion bailout for Islamabad to avert sovereign default.
The much-celebrated deal with the IMF that materialized in July after several rounds of talks between the fund and the government authorities came after the $6.5 billion program ended prematurely at the end of June 2023.
The currency of the South Asian nation has continued to remain under pressure since the caretaker government took over in the middle of this month after the departure of the previous administration of ex-premier Shehbaz Sharif.
The Pakistani rupee has lost its value by Rs16.54 or 5.4 percent in the interbank market since August 11.
Currency dealers said market speculation about further devaluation of the Pak rupee under the IMF conditions was yet another factor contributing to its decline.
“We have asked the central bank to come up with clarification about conditions linked to the rupee devaluation,” Bostan said, adding: “The central bank officials have denied any condition that calls for the rupee devaluation in our personal exchanges, but the market needs a statement to end such speculations.”
The overall currency situation in Pakistan – along with the rising fuel and power prices – is also increasing inflation in the country.
“The short-term inflation is expected to remain elevated at around 28 percent due to petroleum and electricity rate hikes amid currency depreciation,” Ali Nawaz, CEO of Chase Securities, told Arab News.
He said the IMF had predicted 25 to 26 percent inflation for the currency during the ongoing fiscal year, adding it was not clear initially how it had reached that conclusion, though it was now obvious that it was factoring in import liberalization and other prevailing economic conditions.
Tahir Abbas, head of research at Arif Habib Limited, expected that the inflation rate for August would be 28.6 percent in the wake of the currency depreciation and energy price hikes.
“About 40 percent of Pakistan’s Consumer Price Index (CPI) basket is directly linked with dollar,” he said.
Abbas pointed out the currency depreciation immediately impacted power and gas sectors, adding that petroleum products were heavily dollar-dominated.
“These sectors directly and indirectly create inflationary impact,” he said.
