Pakistani rupee weakens against US dollar – The dilemma begins

Pakistani rupee weakens against US dollar – The dilemma begins

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KARACHI: Uncertainty and speculation continued to dominate the trade of US dollars in the open market as the rate hovered around Rs130.5 on Tuesday.

The Pakistani rupee has experienced a worst fall ever against US dollar. Reaching at the historic level of Rupees 128.75 per dollar this week, Pakistani rupee has fallen down to almost 21% relative to the US Dollar, from December 8 to up till now.

Pakistan’s foreign expenditures have remained much higher than its income. Higher expenditures are partly being financed by SBP’s foreign currency reserves, which have depleted to less than two months of import cover at $9.47 billion.

The account and trade deficits which refer to increase in the outflow as compared to the inflow of national currency, are the determiner of economic situation of the country. Pakistan has been running on trade current account deficit for past years.

State bank of Pakistan referred the recent decline of rupees value as an outcome of demand and supply dynamics of foreign exchange in the bank market. Over continuous devaluation of the currency, stake holders expressed deep concern. They consider that situation can be devastating for Pakistan’s economy in the long-run.

The development comes as the State Bank of Pakistan (SBP) devalued the rupee by 5.3% in the inter-bank market on Monday with a fall of another Rs0.5 following on Tuesday, putting the currency at 128.5 against the US dollar.

A day after the rupee weakened by 5.3% in the inter-bank, taking the exchange rate to Rs128 at close on Monday, currency dealers feared a further plunge and saw the number of transactions reduced by three-fourths of the usual volume.

Since December 2017, the central bank has let the rupee fall by close to 22%.

Currency dealers sold most of their holdings in the inter-bank market after individual buyers remained on the sidelines, he added.

“Speculations regarding further devaluation have also convinced sellers to sit on the fence,” said Bostan, adding that it would take a few days for the dollar rate to normalize.

On the other hand, the central bank elaborated that the movement in the exchange rates (rupee-dollar parity) reflects the demand-supply gap of the foreign exchange in the inter-bank market.

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