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Rupee hits a record low of 123 to US$ in inter-bank trade

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ISLAMABAD: Pakistani rupee continued to lose its footing against surging US dollar in the open market after the local currency hit a record low of Rs123 to greenback in intra-day trade in inter-bank market on Thursday.

The inter-bank market marked the steep low during the closing hours when commercial banks usually buy and sell large volumes of foreign currencies, mostly US dollars, on behalf of commercial importers.

The uncertain situation convinced open market currency dealers to voluntarily halt the sale of the foreign currencies.

But when the trade resumed, rupee marked its lowest against US dollar, closing at Rs124 to the greenback.

General Secretary of the Exchange Companies Association of Pakistan (ECAP) Zafar Paracha told this correspondent that the rupee lost 1.6 per cent of its value in the open market against the Wednesday’s closing rate of Rs122.

Major currency dealers agreed with his observation.

According to the State Bank of Pakistan (SBP), rupee weakened by 4.13 per cent when it was Rs120.39 to the US dollar on Monday.

“Traders believe the rupee may soon drop to Rs125 to the US dollar,” Pakistan Forex Association’s president Malik Bostan said.

Currency dealers temporarily halted forex trade “as supplies dried up,” Paracha insisted.
This is the third time rupee depreciated over the past week.

Cumulatively, rupee dropped in value by as much as 14.11 per cent to settle at Rs120.39 in the inter-bank market against Rs105.50 in mid-December last year.

The central bank elaborated the other day the downward adjustment in rupee value reflected mounting pressure on the country’s foreign currency reserves, which depleted to a critical level at $10.06 billion on June 8, sufficient for covering two-month imports.

“The market-based adjustment is reflective of the country’s external balance of payments position which is under pressure due to a large trade deficit,” SBP said in a recent statement.

Despite a 13.3 per cent increase in exports in the first 10 months of the current fiscal year (July-April FY18) and an uptick in workers’ remittances, “growing imports have pushed the current account deficit to $14 billion in the first 10 months of FY18, which is 1.5 times the level of deficit recorded in the same period of last year” the SBP said.

Analysts said they did not expect a further drop in rupee value during the caretaker set up.
“The timing of the depreciation is questionable,” an analyst said.

“Textile exporters are now talking about rupee weakening to Rs140 to the US dollar. This uncertain situation may cause many exporters to hold on to their export proceeds, awaiting further depreciation. If this holds true, the depreciation will worsen foreign currency reserves,” he said.

Malik Bostan asked the authorities concerned to remove all uncertainties in the rupee-dollar parity and help stop repeating history.

He recalled that in 1998, the authorities had devalued rupee by 55% to Rs68 to the US dollar from Rs44 after the domestic forex reserves plummeted to just $500 million.

According to him, the country faced a possible default when banks started denying processing documentation for commercial imports.

He insisted that the previous PML-N government should have done something to avert this situation because it had known this would happen.

“The country needs to arrange $5 billion by December 2018 for smoothly running the domestic economy,” he said.