KARACHI: The US dollar hit new record high at Rs201.41 against the Pakistan Rupee (PKR) on Tuesday despite massive hike in key policy rate.
The exchange rate recorded a loss of 48 paisas in rupee value to end at Rs201.41 to the dollar from previous day’s close of Rs200.93 in the interbank foreign exchange market.
Currency analysts said that the market witnessed high dollar demand for import and other external payments.
A day earlier, the State Bank of Pakistan (SBP) announced a sharp increase in policy rate by 150 basis points to 13.75 per cent.
The SBP hiked the rate with arguments that after contracting by 0.9 percent in FY20 in the wake of Covid, the economy has rebounded much more strongly than anticipated, growing by 5.7 percent last year and accelerating to 5.97 percent this year, as per provisional estimates.
“At 13.4 percent (y/y), headline inflation unexpectedly rose to a two-year high in April and has now been in double digits for six consecutive months. Inflation momentum was also elevated, at 1.6 percent (m/m), and core inflation rose further to 10.9 and 9.1 percent in rural and urban areas, respectively. On the external front, notwithstanding some encouraging moderation in the current account deficit during April, the Rupee depreciated further due both to domestic uncertainty as well as recent strengthening of the US dollar in international markets following tightening by the Federal Reserve.”
Analysts said that the political uncertainty caused further depreciation in rupee as former Prime Minister Imran Khan announced a long march on May 25, 2022 against the present government.
The PML-N led government came to power after former Prime Minister Imran Khan was removed from the executive post after vote of confidence on April 10, 2022.
The present government inherited with serious economic challenges including falling foreign exchange reserves and ballooning current account deficit.
Last week the government announced to impose a complete ban on imports to support balance of payment and help rupee to stable. However, these measures appeared in failure as the exchange rate yet again deteriorated today massively.
Currency experts said that massive fall in foreign exchange reserves and high import payments were the major reasons behind rupee fall.
Pakistan’s foreign exchange reserves fell to $16.161 billion by the week ended May 13, 2022. The foreign exchange reserves of the country were $16.373 billion by week ended May 6, 2022.
The country’s foreign exchange reserves hit record high at $27.228 billion by the week ended August 27, 2021. Since then the foreign exchange reserves have depleted by $11.067 billion.
The official reserves of the State Bank witnessed a decline of $146 million to $10.163 billion by the week ended May 13, 2022 as compared with $10.309 billion a week ago.
The SBP reserves reached a record high at $20.145 billion by August 27, 2021. The official reserves also fell by around $10 billion after reaching record high. The official reserves of the SBP have been reduced to provide import payment cover for only 1.50 months.
The import bill of the country surged by 46.41 per cent to $65.49 billion during the first 10 months of the current fiscal year as compared with $44.73 billion in the corresponding months of the last fiscal year.
Pakistan is a net importer of petroleum products to meet its domestic demand. The country’s oil bill was $14.81 billion during the first nine months (July – March) 2021/2022 as compared with $7.55 billion in the corresponding period of the last fiscal year, showing a massive growth of 96 per cent. The oil bill is around 25 per cent of the total import bill of the country.