Covid-19: Pakistani rupee falls to all-time low against dirham, US dollar
Dubai - Due to outflow of investment from T-bills and impact of coronavirus on the economy.
By Waheed Abbas
Published: Thu 26 Mar 2020, 3:39 PM
Last updated: Fri 27 Mar 2020, 3:54 AM
Dubai - Pakistani rupee slumped to record low against the US dollar and the UAE dirham on Thursday, dragged down by outflow of investments from T-bills and relaxation in forex regulations by the country's central bank.
Data from xe.com showed that the rupee plummeted to an all-time low of 45.6 against the UAE dirham or 167.35 versus the US dollar on Thursday. The rupee's previous all-time low was hit on July 1, 2019, when it had crashed to 44.5 versus dirham.
The rupee came under pressure after State Bank of Pakistan (SBP) eased foreign exchange regulations to facilitate import of medical equipment to fight coronavirus.
SBP allowed all federal and provincial government departments, hospitals in public and private sectors, charitable organisations, manufacturers and commercial importers to make Import Advance Payment and Import on Open Account, without any limit, for the import of medical equipment, medicines and other ancillary items for the treatment of Covid-19.
The rupee has been steady over the past couple of quarters after Islamabad signed a $6 billion agreement with International Monetary Fund to stabilise economy. The Fund had asked Islamabad to allow the free float of currency and let market dynamics settle the forex rates. Since then, the State Bank of Pakistan (SBP) didn't intervene in the market to prop the currency.
Rajiv Raipancholia, CEO of Orient Exchange, said the main factors behind the decline in rupee's value is interest rate cuts by State Bank of Pakistan and decline in dollar inflow into the country as remittances from overseas Pakistanis fall due to Covid-19 impact.
"The main reasons for the decline in rupee is the rate cut by State Bank of Pakistan of 150 basis point, drastic reduction in inflows from overseas Pakistanis due to Covid-19, and big effect on its GDP from Covid-19," said Raipancholia.
SBP has slashed interest rates twice in the past one week from 13.25 per cent to 11 per cent. A high interest rate supports currency by encouraging hot money inflows into treasury bills.
The State Bank's latest data showed that revealed that outflow of investment from treasury bills increased to $1.614 billion in the first 20 days of March. This took the net foreign holdings in government papers down to $1.46 billion from the peak of $3.4 billion.
Its data showed that remittances during February amounted to $1.82 billion, a decrease of $83 million or 4.4 per cent over remittance received during previous month.