Karachi, June 14, 2023: The Pakistani Rupee (PKR) saw a significant increase of 79 paisas against the US dollar on Wednesday in the interbank foreign exchange market.
The rise in value can be attributed to the initiation of cheaper Russian oil imports.
READ MORE: Rupee Declines Against Dollar to PKR 286.93 as Foreign Exchange Reserves Plummet
The exchange rate closed at PKR 287.18 to the dollar, displaying a notable appreciation from the previous day’s closing rate of PKR 287.97. This positive trend in the rupee’s value can be linked to the introduction of Russian crude oil, which is substantially more affordable than oil available in international markets. Pakistani refineries have begun utilizing this cost-effective resource for the production of various end products.
READ MORE: Rupee Ends Four Day Losing Streak
However, analysts have expressed concerns over the declining foreign exchange reserves, which pose a potential threat to the stability of the rupee. Data released by the State Bank of Pakistan (SBP) revealed that the official foreign exchange reserves have fallen below the one-month import cover level. By the week ending June 2, 2023, the reserves declined by $179 million to $3.912 billion, compared to the previous week’s figure of $4.091 billion (May 26, 2023).
According to the Pakistan Bureau of Statistics (PBS), the country’s import bill for May 2023 amounted to $4.275 billion, marking a significant increase of 43 percent compared to April 2023’s $3 billion. This surge can be primarily attributed to the government’s decision to lift restrictions on opening Letters of Credit (LCs) for import payments. It is worth noting that international standards recommend a central bank to maintain foreign exchange reserves equivalent to at least three months’ worth of import cover.
READ MORE: Pakistani Rupee Extends Losses for Fourth Consecutive Session Against US Dollar
The ongoing decline in foreign exchange reserves is mainly driven by the country’s external debt repayment obligations, highlighting the challenges Pakistan faces in maintaining a favorable balance of payments. It is noteworthy that Pakistan’s foreign exchange reserves reached an all-time high of $27.228 billion by the week ending August 27, 2023. However, the country has since experienced a significant decrease, with reserves declining by $17.893 billion.
The Pakistani Rupee has been under 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, raising concerns among investors and eroding confidence in the local currency.
READ MORE: Rupee Experiences Third Consecutive Loss Against Dollar; Interbank Ends PKR 286.56
The value of exchange rates is influenced by various factors, including supply and demand dynamics, market sentiment, and economic indicators. The recent devaluation of the Pakistani Rupee against the US dollar reflects the prevailing economic conditions and emphasizes the urgent need for measures to stabilize the currency.
As the central bank of the country, the State Bank of Pakistan plays a crucial role in managing the exchange rate and implementing policies to foster stability. To restore confidence in the Pakistani Rupee, the government must address economic challenges, attract foreign investment, and improve the overall economic outlook through prudent economic policies and structural reforms.
Market participants, policymakers, and financial experts will closely monitor exchange rate movements to assess their potential impact on various sectors of the economy. By analyzing these fluctuations and developing strategies, efforts will be made to mitigate factors that contribute to volatility in the foreign exchange market.
