Depreciation of rupee due to political and economic uncertainty is still continued and reached the 232 level against the US dollar in the inter-bank on Monday.
During intra-day trading, the rupee was quoted at 232, down about 1.6 percent against the greenback at 1:50pm.
The rupee fell 7.6 percent against the US dollar in the previous week, more than what businesses expect in terms of annual currency depreciation, as renewed political uncertainty and heightened concerns about Pakistan’s external financing needs caused the inter-bank market to experience turbulent five sessions.
Read more: Political upheavals plunge rupee to 215 against US dollar
In almost two decades, the currency had its worst week, hitting new lows in each session to conclude at 228.37 vs the US dollar. Political uncertainty was reignited during the Punjab by-elections, in which Pakistan Tehreek-e-Insaf (PTI) defeated Pakistan Muslim League-Nawaz (PML-N), prompting concerns about the continuation of economic reforms promised by the coalition government to the International Monetary Fund (IMF).
With the election ultimately failing to break the impasse, the rupee is likely to remain under pressure, even as the State Bank of Pakistan (SBP) reiterated that Pakistan’s $33.5 billion external financing needs are fully met for fiscal year 2022-23, claiming that “unwarranted” market concerns about the country’s financial position will dissipate in weeks.
For months, the rupee has been under pressure as dwindling foreign exchange reserves and a widening current account deficit manifested in the currency’s decline.
Furthermore, Acting Governor of the SBP Dr Murtaza Syed moved to assuage concerns, stating that Pakistan is not among the most vulnerable countries in the world and that the central bank’s capable team is working with global institutions to overcome current hardships in the international economic environment.
However, he stated that Pakistan is not one of the most susceptible countries in the world, therefore its people should not be worried.
Read more: SBP official explains “Why is the Rupee always depreciating?”
In SBP’s podcast titled “Why is rupee always depreciating?” Research Analyst at SBP, Dr. Ali Chaudhry depicted a direct relationship between consumption and trade deficit as consumption increases, trade deficit increases, which causes depreciation. Because we are a consumption driven society, this itself leads to continuous trade deficit.