Rupee dips to new low but cuts losses ahead of suspected SBP intervention closes
KARACHI: The rupee fell again on Wednesday to a new all-time low of 169.70 per dollar, but cut some losses ahead of the close on a suspected central bank intervention, brokers said.
In the interbank market, the rupee closed at 169.12 per dollar, down 0.11% from Tuesday’s close of 168.94. It is the weakest closing of the rupee.
The rupee hit a record low in the open market, trading at 170.50 early in the session. However, it closed at 169.60 to the dollar, unchanged from the previous close.
The rupee is under pressure due to increased demand for dollars from importers and limited supplies. The soaring trade deficit and current account imbalances continued to weigh on the local unit.
The rupee managed to recoup some of the ground lost before the end of the day following an alleged sale of dollars by the SBP (State Bank of Pakistan), which not only supported the supply, but also boosted sentiment, ”the currency trader said.
SBP intervention limited a more pronounced fall, and traders expected the rupee to stabilize until resistance at 169 per dollar was not broken.
The SBP has adopted a flexible market-based exchange rate system since June 2019, where the exchange rate is determined by supply and demand conditions. The SBP has repeatedly explained in its statements that it can only intervene in the market to avoid disorderly market conditions.
Tangent Capital CEO Muzammil Aslam said the pressure on the rupee was due to a higher import bill.
“The SBP has the discretion to intervene if it thinks the market is being manipulated,” Aslam said. “The SBP works on both sides of the table, sometimes mopping up the dollars or sometimes keeping the market liquid, depending on the situation.”
Analysts said the central bank’s limited intervention in the market does not run counter to its own market-determined exchange rate policy and the policy of the International Monetary Fund.
The government’s efforts to support the economic recovery in the aftermath of the coronavirus-induced lockdown and achieve growth have resulted in increased domestic demand, consumption and business investment.
A higher import bill puts pressure on the current account balance; Monthly CAD has averaged over $ 1 billion since June. Rising commodity prices also played a role in increasing the trade deficit.
With oil trading around $ 70 / bbl and record coal prices, things are unlikely to change on this front. Uncertainty surrounding the prospect of inflows is high as travel to the Middle East picks up.
“The demand for dollars is greater than the supply due to the current account deficit / trade deficit as well as the situation in Afghanistan,” said Samiullah Tariq, research manager at the Pak-Kuwait Investment Company.
“Afghanistan was a net contributor of dollars to Pakistan as Western aid money flowed into the country. Much of the demand for goods was met by Pakistan, such as milk water, etc. With entry drying up, the supply of dollars from Afghanistan has also disappeared, ”Tariq added.
Analysts said the devaluation of the rupee is likely to fuel imported inflation. The rupee has lost 4% against the dollar since the announcement of the last monetary policy in July.