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Pakistani rupee at all-time low against UAE dirham

The forex industry executives expect rupee will remain under pressure and likely to weaken further



A man holds Pakistan rupees in Dubai. Falling foreign exchange reserve will also put pressure on the rupee, which lost around 3.9 per cent last month. — File photo
A man holds Pakistan rupees in Dubai. Falling foreign exchange reserve will also put pressure on the rupee, which lost around 3.9 per cent last month. — File photo
by

Waheed Abbas

Published: Thu 7 Apr 2022, 5:39 PM

Pakistani rupee slumped to an all-time low of nearly 50.8 against the UAE dirham on Thursday due to political uncertainty in the South Asian country, impact of high oil prices on the country’s balance of payments and US Federal Reserve’s hawkish policy to contain inflation.

The forex industry executives expect rupee will remain under pressure and likely to weaken further.

In addition, falling foreign exchange reserve will also put pressure on the rupee, which lost around 3.9 per cent last month.

Nagesh Prabhu, deputy general manager for Treasury at LuLu Exchange, has predicted the rupee falling to 50.9 and 51 against the dirham in the coming days.

Pakistani President Arif Alvi dissolved the country’s parliament on recommendations of prime minister Imran Khan last week as opposition parties tried to oust him through a no-confidence vote which he was poised to lose. All eyes are now fixed on the Supreme Court, which has taken a suo moto notice about the dissolution of parliament.

Central bank raises interest rates by 2.5%

State Bank of Pakistan, central bank, raised interest rates by 250 basis points to 12.25 per cent on Thursday for next two months to prop up rupee and contain surging inflation.

The central bank is also in the process of taking further actions to reduce pressures on inflation and the current account, namely an increase in the interest rate on the export refinance scheme (EFS) and widening the set of import items subject to cash margin requirements.

These items are mostly finished goods including luxury items and exclude raw materials.

Inflation a matter of concern

At its last meeting on March 8, 2022, the Monetary Policy Committee (MPC) noted in its statement the significant uncertainty around the outlook for international commodity prices and global financial conditions, which had been exacerbated by the Russia-Ukraine conflict.

Given the unfolding situation, the MPC had highlighted that it was prepared to meet earlier than the next scheduled MPC meeting in late April, if necessary, to take any needed timely and calibrated action to safeguard external and price stability.

Average inflation forecasts in the South Asian country has been revised upwards to slightly above 11 per cent in fiscal year 2021-22 before moderating in financial year 2022-23.

Current account deficit

The current account deficit was still expected to be around 4 percent of GDP in financial year 2021-22. While the non-oil current account balance has continued to improve, the overall current account remains dependent on global commodity prices.

The MPC highlighted that Pakistan’s external financing needs in fiscal year are fully met from identified sources.

Looking ahead, the MPC noted that today’s decisive actions, together with a reduction in domestic political uncertainty and prudent fiscal policies, should help ensure that Pakistan’s robust economic recovery from Covid-19 remains sustainable.

Foreign exchange reserves

Meanwhile, Pakistan’s liquid foreign reserves stood at $17.47 billion. The net foreign reserves held by commercial banks were $ 6.15 billion.

During the week ending on April 1, SBP reserves decreased by $728 million to $11.319 billion, largely due to debt repayment and government payment pertaining to settlement of an arbitration award related to a mining project. (With inputs from agencies)

— waheedabbas@khaleejtimes.com


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