Dollar rises to PKR 226.41 as demand jumps for import, corporate payments

Dollar rises to PKR 226.41 as demand jumps for import, corporate payments

KARACHI: The US dollar rose to Pakistani Rupee (PKR) 226.41 on Thursday as demand jumped for import and corporate payments.

The exchange rate recorded four paisas decline in rupee value to PKR 226.41 from previous day’s closing of PKR 226.37 in the interbank foreign exchange market.

Currency experts said that high dollar demand for import and corporate payments pressured the local currency.

READ MORE: Rupee further weakens to dollar as SBP lifts ban on imports

Earlier this week, the SBP withdrew the condition of prior approval for banks in processing the import payments. It is worth mentioning that the central bank in pursuance to the federal government directions imposed restriction in May 2022 on opening of letter of credits (LCs) for import of goods falling under Chapter 84, 85 and certain items in 87 of Pakistan Customs Tariff.

The restrictions were imposed in order to prevent dollar flight and rescued the local currency from massive depreciation. Apparently, the restrictions have failed to achieve the desired results as both the rupee and foreign exchange reserves recorded massive depreciation during the period.

The experts said that due to end of the year the foreign companies were also seen engaged in buying dollars to repatriate dividend and profits for period ending December 31, 2022.

READ MORE: Rupee free fall continues; dollar hits PKR 226.15 in interbank

The local currency witnessed a decline of over 10.50 per cent since the start of the current fiscal year. The exchange rate was at PKR 204.85 at the start of the current fiscal year on July 01, 2022 and fell to the present level of PKR 226.41 to the dollar.

The official foreign exchange reserves of Pakistan reduced to provide about one month import cover.

The official foreign exchange reserves of the State Bank Pakistan (SBP) fell to $6.12 billion by week ended December 16, 2022. Whereas, the import bill of the country for the month of November 2022 was recorded at $5.18 billion, according to Pakistan Bureau of Statistics (PBS).

READ MORE: Rupee depreciates to PKR 225.82 against dollar in interbank

This shows the official foreign exchange reserves of the country have capacity to provide import cover for only 1.2 months. The benchmark foreign exchange reserves of a central bank should be at a level to provide three months import cover.

The central bank said that its foreign exchange reserves fell by $584 million to $6.12 billion by week ended December 16, 2022 when compared with $6.70 billion a week ago i.e. December 09, 2022.

READ MORE: Rupee deteriorates on falling foreign exchange reserves

State Bank attributed the decline in official reserves to external debt repayment. The current level of reserves witnessed multi years low as the SBP reserves were seen at $7 billion in April 2014.

The foreign exchange reserves held by the central bank witnessed a record high at $20.146 billion by week ended August 27, 2021. Since then the official reserves of the SBP dropped by $14.026 billion.