As efforts continued to narrow the gap between exchange rates, Pakistani rupee hit a new all-time low at Rs304.45 against the US dollar in the inter-bank market on Wednesday, stoking fears that inflation would remain at elevated levels and dent economic activities.

According to the State Bank of Pakistan’s (SBP) data, the rupee depreciated 0.46%, or Rs1.40, to Rs304.45/$ in inter-bank trade. With the fresh decline, the currency remained on a record-breaking downward spree for the seventh successive working day.

According to the Exchange Companies Association of Pakistan (ECAP), the rupee dropped 0.46%, or Rs1.50, to Rs319.50/$ in the open market. Consequently, the difference between the two markets widened to 5% (Rs15.05), which was significantly higher than the International Monetary Fund (IMF)’s recommended level of 1.25% (slightly over Rs4 at current parity).

A currency dealer said that the rupee had dropped to Rs327/$ in retail trade, widening the gap even further to 7.40%, or Rs22.50 – a worrisome situation, particularly for the low- and middle-income groups, which were already agitating against the soaring inflation and inflated electricity bills.

Talking to The Express Tribune, Ismail Iqbal Securities Head of Research Fahad Rauf said that the rupee remained on the downward path under a vicious cycle.

“The inter-bank market has continued to follow the open market in an attempt to narrow the exchange rate gap to 1.25%. The open market, on the other hand, continued to follow the falling currency in the grey market,” he elaborated.

The IMF has asked Pakistan not to artificially control the rupee-dollar parity and let market forces determine the exchange rate.

Rauf pointed out that Pakistan’s foreign exchange reserves slipped below $8 billion once again after the current account logged a deficit of over $800 million in July.

Besides, the government has allowed foreign investors to resume the repatriation of profits and dividends to their company headquarters abroad. Earlier, they were asked to keep the profit in Pakistan for some time in the face of a foreign exchange crisis. Rauf was of the view that Pakistan should either look for foreign currency inflows through different sources including the multilateral creditors or the government should crack down on the grey market.

In the backdrop of rupee depreciation, the gold pricing committee increased the commodity’s price by Rs2,900 to Rs236,400 per tola (11.66 grams).

The increase in the metal’s price came partly owing to a rise in the global market, where bullion went up $21 to $1,938 per ounce (31.10 grams).

Published in The Express Tribune, August 31st, 2023.

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