Karachi, June 19, 2023 – Analysts have reported a decrease in the value of the Pakistani Rupee against the US dollar on Monday, driven by heightened demand at the beginning of the week.
The interbank foreign exchange market recorded an exchange rate of PKR 287.26 to the dollar, compared to last Friday’s closing rate of PKR 287.19.
READ MORE: PKR Goes Up 18 Paisas Against Dollar at Interbank Closing
The market opening after the weekly holidays intensified the demand for dollars, particularly for import and corporate payments, as noted by analysts. They anticipate that the pressure on the currency will persist in the coming days due to a lack of inflows and delays in securing a loan program from the International Monetary Fund (IMF). Pakistan’s failure to secure a tranche of over a billion dollars under the IMF program has further exacerbated the situation.
Concerns have arisen among analysts regarding the decline in foreign exchange reserves, which poses a potential threat to the stability of the Pakistani Rupee. Recent data from the State Bank of Pakistan (SBP) reveals that the official foreign exchange reserves have fallen below the one-month import cover level. As of the week ending June 2, 2023, the reserves declined by $179 million, reaching $3.912 billion, compared to the previous week’s figure of $4.091 billion (May 26, 2023).
READ MORE: Pakistani Rupee Slips Against Dollar to End at PKR 287.37 in Interbank
In addition, Pakistan witnessed a substantial increase of 43 percent in its import bill for May 2023, amounting to $4.275 billion compared to April 2023’s $3 billion. This surge can be attributed to the government’s decision to lift restrictions on opening Letters of Credit (LCs) for import payments. International standards recommend that a central bank should maintain foreign exchange reserves equivalent to at least three months’ worth of import cover, highlighting the urgency of addressing the situation.
The continuous decline in foreign exchange reserves primarily stems from the country’s external debt repayment obligations, underscoring the challenges Pakistan faces in maintaining a favorable balance of payments. Notably, Pakistan’s foreign exchange reserves reached a record high of $27.228 billion by the week ending August 27, 2023. However, since then, the country has experienced a significant decrease, with reserves declining by $17.893 billion.
READ MORE: Rupee gains 79 paisas to end PKR 287.18 against dollar in interbank
The Pakistani Rupee has faced substantial pressure in recent weeks due to limited inflows and a challenging political climate. On May 11, 2023, the rupee hit a record low of PKR 298.93 against the US dollar, causing concerns among investors and eroding confidence in the local currency.
The exchange rate is influenced by various factors, including supply and demand dynamics, market sentiment, and economic indicators. The recent strengthening of the Pakistani Rupee against the US dollar reflects the prevailing economic conditions and emphasizes the immediate need for measures to stabilize the currency.
As the central bank of the country, the State Bank of Pakistan plays a critical role in managing the exchange rate and implementing policies to foster stability. Restoring confidence in the Pakistani Rupee requires addressing economic challenges, attracting foreign investment, and improving the overall economic outlook through prudent economic policies and structural reforms.
READ MORE: Rupee Declines Against Dollar to PKR 286.93 as Foreign Exchange Reserves Plummet
Market participants, policymakers, and financial experts will closely monitor exchange rate movements to assess their potential impact on various sectors of the economy. Analyzing these fluctuations and developing strategies will be crucial in mitigating factors contributing to volatility in the foreign exchange market.
