KARACHI: Geopolitical instability with changes in the exchange rate remained damaging the local currency hard as it shed 48-paisa versus the US dollar on Tuesday.
The greenback price jumped to Rs176.23 in the interbank market after losing 11-paisa a day earlier.
Despite increasing inflows in the account of the State Bank of Pakistan (SBP), the rupee could not become stronger, and this was primarily owing to the significant demand for dollars from importers.
“The rupee wins for a small period versus the dollar, but most of the time the US currency remains dominant,” said Atif Ahmed, a currency dealer in the interbank market.
The US dollar was strengthening in the international currency market, partly owing to four times higher oil costs. Oil payments are done in dollars, hence the demand for the US currency is high internationally.
On the other hand, Pakistan is paying the highest amount for oil imports, which produced major trade and current account imbalances.
During the first half of 2021-22, the current account deficit grew to $9 billion and it may climb higher in the remaining months of this fiscal year.
The SBP has not yet released the current account number for January.
“The signals are visible for bigger trade and current account deficits as the higher imports would further expand the current account deficit. Therefore the market cannot favour the local currency,” Atif noted.
The recent entry of $1bn from the IMF and $1bn Sukuk revenues increased the SBP reserves, although it had suffered an outflow of $3bn since August 2021.
The market believes that the developing economic links of Saudi Arabia and India might cast a negative influence on Pakistan since Pakistan receives the greatest remittances from the Arab country.
Pakistan depends substantially on remittances, perhaps more than exports. The nation hopes to receive a total of $30bn in FY22 as $18bn was returned home by abroad Pakistani in the July-January period.
If Pakistanis working in Saudi Arabia lose their employment, “the dollar dominance in Pakistan would become much more pronounced,” he warned.
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