The Pakistani rupee was hammered by the US dollar in the inter-bank market on Tuesday, reaching 221 in intra-day trade amid increasing political uncertainty that has undermined market confidence and given “speculators” more ammunition.
Before lunchtime, the rupee was trading at 221, a significant fall of Rs5.8 against the US dollar.
On Monday, the rupee closed at a record low of 215.2 against the US dollar in the inter-bank market, as political instability following the Punjab by-elections pushed the market into a frenzy.
Analysts say the Pakistan Tehreek-e-Insaf (PTI) triumph in Sunday’s polls fueled calls for general elections, putting economic reforms on hold once more.
“The brewing political tempest has disrupted policy continuity,” Wajid Rizvi, Head of Research at Intermarket Securities, told a local news agency.
“This has resulted in speculative behaviour towards the International Monetary Fund (IMF) programme,” he stated.
The downgrades of Pakistan’s outlook by Moody’s last month and Fitch today have added to the uncertainty, according to Rizvi.
Fitch Ratings lowered Pakistan’s outlook from stable to negative on Tuesday, citing a significant deterioration in the country’s external cash position and financing conditions since early 2022.
In a difficult economic and political environment, Fitch anticipated significant risks to the implementation of the IMF programme and Pakistan’s continuing access to finance after the program’s expiration in June 2023.
“Despite the improvement in remittances, the political atmosphere is not looking positive,” Rizvi remarked. “With elections possibly on the horizon, the administration is more likely to seek popular policies, rather than fiscal consolidation,” he said.
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Meanwhile, Samiullah Tariq, Head of Research at Pakistan Kuwait Investment Company, stated that the currency is falling due to payment pressures caused by oil imports and continuous political uncertainties. Businesses seem to have lost confidence.
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