Rupee Hits Nearly Three-Week Low

Introduction:

The Pakistani rupee continued its downward trend for the second consecutive working day, reaching a nearly three-week low against the US dollar. With a depreciation of 0.24%, or Rs0.70, the currency settled at Rs287.60 in the inter-bank market. Meanwhile, this article examines the factors behind the rupee’s fall and its impact on Pakistan’s economy.

The Rupee’s Decline:

Following its previous closing rate of Rs286.93 against the greenback, the rupee’s value declined in the inter-bank market. The State Bank of Pakistan (SBP) reported the decrease, highlighting the currency’s ongoing depreciation.

Stable Open Market:

In contrast to the fluctuating inter-bank market, the open market remained stable with the rupee closing unchanged at Rs305/$, according to the Exchange Companies Association of Pakistan (ECAP). This stability came after a week of sharp currency rate fluctuations.

Reasons for the Decline:

Conflicting reports regarding Pakistan’s foreign debt restructuring contributed to the recent drop in the inter-bank market. Finance Minister Ishaq Dar expressed the need for debt restructuring, even in the absence of support from the International Monetary Fund (IMF). On the other hand, SBP Governor Jameel Ahmad denied having any knowledge of debt restructuring. Additionally, Pakistan’s foreign exchange reserves have continuously declined for six consecutive weeks, dipping below $4 billion. The dwindling reserves pose challenges to the country’s import cover, which currently provides support for only about a month.

Central Bank’s Monitoring:

The calm observed in the open market can be credited to the central bank’s vigilant monitoring of exchange businesses carried out by currency dealers. The State Bank of Pakistan reminded Category B currency exchange companies about their non-compliance with its directives. Specifically, the bank instructed them to install a biometric verification system in collaboration with the National Database and Registration Authority (NADRA). Furthermore, this system aims to record rupee-dollar exchange transactions between individual buyers and sellers. The deadline for the installation of the biometric system has been extended to July 31, 2023.

Conclusion:

In conclusion, the decline of the Pakistani rupee against the US dollar in the inter-bank market raises concerns about the country’s foreign debt restructuring and shrinking foreign exchange reserves. It is crucial for policymakers and the central bank to address these challenges to stabilize the currency and promote economic growth.