Free fall of rupee continues as dollar hits Rs303

KARACHI: Setting of new lows of Pakistani rupee against the US dollar in the interbank market continued unabated for the sixth straight session and the local unit plunged to yet another low of 303.05 on Tuesday, depreciating by Rs1.05 (-0.35 percent).
The State Bank of Pakistan (SBP) said in a tweet that the rupee opened at 302 against the dollar in the interbank market and closed at 303.05.
The rupee has been witnessing the all-time lowest levels against the dollar for the last six sessions. Earlier, the rupee hit all-time lows of 302 on Monday, 301 on Friday, 300.22 on Thursday, 299.64 on Wednesday and 299.01 per dollar on Tuesday last.
The rupee depreciated against the US dollar in the interbank market by Rs5.22 last week, Rs17.06 during the current fiscal year 2023-24, and Rs75.62 in the current year.
Similarly, the local unit depreciated against the greenback in the open market by Rs4 (-1.26 percent). The rupee was quoted in the range of 316-321 against the dollar in the open market as compared to 314-317 a session earlier. In the black market/Hundi, the dollar surged to Rs338 as compared to Rs332 in the previous session.
Due to the latest depreciation, the gap between the interbank and open market rate has risen to 4.10 percent and has exceeded the recommended 1.25 percent threshold set by the International Monetary Fund (IMF). Recalling the IMF staff report issued on July 18, 2023, a market-determined exchange rate was recommended to absorb external pressures. Consequently, the government’s ability to control the rupee through trade restrictions has been limited.
According to currency experts, the demand for the dollar remained high as imports are opening up gradually. They said the rupee’s recent decline can be attributed to the removal of restrictions on letters of credit (LCs), which has led to an increased demand for dollars and subsequently weakened the rupee. They said that the local unit continues to face immense pressure amid political uncertainty surrounding the general elections, which is causing turbulence in local markets.
They said the rupee’s depreciation was expected, as under the agreement with the International Monetary Fund (IMF), the difference between the open market and the interbank market should be one percent. They said that the open market is witnessing an upward trend, adding that this also has an effect on the interbank market.
On the other hand, foreign exchange reserves held by the SBP decreased by $125 million on a weekly basis, clocking in at $7.93 billion as of August 18. Total liquid foreign reserves held by the country stood at $13.25 billion. Net foreign reserves held by commercial banks stood at $5.32 billion. The central bank cited debt repayments as the reason for the decrease in the foreign currency reserves. – TLTP