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The curious case of the fall of the Pakistani rupee

M. Aftab/Dubai
Filed on January 16, 2018 | Last updated on January 16, 2018 at 07.22 am
The curious case of the fall of the Pakistani rupee

(File photo)

The remittances sent home by overseas Pakistanis, including from the UAE are rising against previous projections of a slowdown.

Despite most economic indicators being in the positive, the Pakistani rupee curiously continues to lose value.

On Saturday, the US dollar was trading at Rs110.40 and Rs110.60 for buying and selling respectively in the interbank market. In the open market, it was exchanging hands at Rs111.90 and Rs112.30 for buying and selling respectively against the dollar.

The good march of the Pakistan economy was highlighted by the World Bank, confirming its growth rate for financial year 2017-18 at 5.5 per cent, which is 0.5 per cent higher than in 2016-17. Exports, which had declined from a peak of $25 billion four years ago to $20 billion in 2016-17, rose 15 per cent year on year in December 2017. Year-on-year growth in imports was restricted to 10 per cent in December 2017.

The best news is that remittances sent home by overseas Pakistanis, including from the UAE, Middle East, EU, UK and US, are rising against previous projections of a slowdown.

The State Bank of Pakistan (SBP), the central bank, has reported that remittances rose to $9.7 billion in the last six months - July-December - of 2017-18, the first half of the current fiscal, compared to the like period of last year. Remittances at this rate for the full-year of 2017-18 can reach a total of $20.4 billion, the highest ever.

"Despite a wide gap in the dollar rates in the open and banking markets, overseas Pakistanis preferred to send money home through banking channels. This reflects their confidence in the government as well as banks operating in Pakistan," the SBP said.

The Pakistani currency was selling at Rs110.40 to the US dollar and buying at Rs110.20 in the interbank market on January 10. In the open market, the currency fared worse. It was selling at Rs112.80 and was quoted at Rs112.50 for buying to a dollar. At its worst, the rupee had gone down to Rs115 to a dollar for selling just a few days ago.

The background for this volatility is some of the recent troubles faced by the economy, which had surfaced when former Prime Minister Nawaz Sharif was removed from his position by the Supreme Court of Pakistan.

The adverse impact of this situation had, in the middle of the last calendar year, hit the Pakistani currency, but not so badly as now. On September 8, 2017, the currency was quoted in the interbank market at Rs106.85 for selling and Rs106.75 for buying. In the open market, the buying rate was Rs106.40 and the selling rate was around Rs106.60.

Despite a sign of stability in the market and the economy, the rupee continues on a downward slope. Where will this trend end? Will it keep slipping further? The answer is both 'yes' and 'no'.

The currency touched an all-time low when it traded at Rs113.50 to a dollar on January 8, 2018. It was when money changers were trying to keep supply of dollars intact, following the SBP's order to restrict currency imports. The open currency market saw the dollar trading at Rs111.50 to Rs111.80 on June 12.

Zafar Paracha, secretary-general of the Foreign Exchange Companies Association, said there is a shortage of dollars in the market while demand is high.

"The rupee value came down more than two per cent last week since the SBP imposed restrictions on the import of US dollars against permissible foreign currencies," Paracha said.

An SBP executive told Khaleej Times that volatility in the open market is a temporary phenomenon and it has nothing to do with the central bank's decisions.

The writer is based in Islamabad. Views expressed are his own and do not reflect the newspaper's policy.

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