Pakistani Rupee (PKR) has depreciated further by 1.41 rupees in the intraday trade as it hit a new record low of PKR 175.70 against USD on Friday. The continuous delay in the revival of the International Monetary Fund’s (IMF) $6 billion loan program has led to the Pakistani rupee (PKR) losing ground in the last few days.
Former Treasury Head-Chase Manhattan Bank, Asad Rizvi took to Twitter and wrote, “PKR that was holding up relatively well after the news of Saudi deposit & in hope of getting IMF nod lost nearly 440 paisa in 9-days due to delay.”
However, the plunging of the domestic currency has pushed gold prices to rise for the sixth consecutive day. The precious metal increased by Rs3,300 to a two-week high at Rs129,100 per tola (11.66 grams).
Head of Research at Ismail Iqbal Securities Fahad Rauf said, “Prolonged delay in the resumption of IMF program is taking a toll on the rupee”.
He added that the delay has led to speculation if the IMF would revive the program or Pakistan will be quitting the program as “chances for which are next to nothing”. He noted, “The uncertain situation has sparked volatility in the rupee.”
According to reports, Pakistan has satisfied almost all the conditions put forth by the IMF which include the hike in power tariff. Still, the two sides have not reached an agreement regarding the condition of autonomy for the central bank.
The government has communicated to the IMF that it failed to achieve a two-thirds majority in parliament which is required to secure approval of the SBP amendment bill. It is expected that the IMF will be taking the government’s position into consideration.
Furthermore, the Asian Development Bank (ADB) has also made an announcement that it will play its part in reviving the IMF program.
PKR hit a record low of Rs175.27 against the US dollar on October 26. It later recovered and reached Rs169.97 by November 3 amid Saudi Arabia’s announcement of a $4.2 billion assistance package for the country.
Rauf noted that expectations about the resumption of the IMF program also lent support to the local unit.
Currently, it is expected that the rupee might continue to depreciate and may return to the record low of Rs175.27 and remain there till the next loan tranche gets approved by the IMF.
Rauf added that the real effective exchange rate (REER) that is the country’s cost of trade with the world, would move to 93-94 points once the PKR “depreciates to around Rs175, which means that the currency has become notably undervalued.” He added, “The rupee shedding its value beyond Rs175 will be unlikely if the IMF announces resumption of the programme”.
“The currency will drop to Rs190 in case the global lender delays the matter for another three to six months,” he noted.
Head of Research at Pak-Kuwait Investment Company Samiullah Tariq said that the domestic currency was depreciating owing to rising demand for dollars to pay for imports and its lower supply.
Pakistan’s current account deficit is high mostly due to a swelling import bill. Tariq added, “A current account deficit of over $500 million a month is unaffordable. It will keep denting the rupee’s value”.
The current account deficit is above $1 billion a month during the first three months (July-September) of the ongoing fiscal year 2021-22.
Gold soars
The bullion is just Rs1,900 behind its all-time high of Rs132,000 registered two weeks ago.
AA Gold Commodities Director Adnan Agar said, “The uptrend in the precious metal in global markets multiplied the price of the commodity in local markets as demand for the metal is met through imports,”
Gold continued its uptrend in global market due to US reporting 30-year high inflation at 6.2% on Wednesday. Tariq added that investors may opt for profit taking at current levels.
