Rupee hits record low

KARACHI: The rupee fell to a record low on Wednesday because of increased corporate demand for the dollars, dealers said.

In the interbank market, the rupee ended at 168.43 against the dollar, compared with the previous closing of 168.37.

It traded in the range of 168.36 and 168.58 during the session.

Previously, the rupee hit an all-time low of 168.38 on August 10, 2020. The local currency has lost 8.7 percent so far this year.

However, in the open market, the rupee lost 20 paisas to close at 169 against the greenback.

“The rupee opened on a positive note, but a fresh dollar demand from a big company to pay for imports pushed the rupee down,” a currency dealer said.

“A large commercial bank bought dollars to meet the corporate demand, which put pressure on the local unit.”

Analysts expect sustained pressure on the rupee due to fiscal imbalances, amid increasing monetary easing. High loan repayments could also weigh down the rupee in the coming months.

“We anticipate, the rupee to weaken to 170 per dollar by the end of December 2020,” an analyst said.

“The future course of the rupee would depend on the monetary policy, inflation and position of the foreign exchange reserves,” he added.

The central bank’s monetary policy committee is due to meet next month to set Pakistan’s key policy rate.

However, some analysts see a short-term improvement in the exchange rate, amid undervaluation of the rupee against the greenback.

Current import cover calculated on the basis of three months of rolling average, imports currently stands comfortably above 3.7 months, another analyst at BMA Capital said in a client note.

“Improvement in foreign exchange reserves and overall improvement in external account enabled improvement in Real Effective Exchange Rate (REER) of the country to 93.0199 (June 2020), indicating undervaluation of PKR vis-à-vis its major trading partners.

That said, some improvement in PKR can be expected in the short-term.”

Pakistan posted a current account surplus of $424 million in July 2020, as against the deficit of $100 million in the previous month.

The deficit stood at $613 million in July 2019. Pakistan’s forex reserves increased $137 million to $19.655 billion as of August 13.

The analyst also said that stable currency should help attract fresh investments into the country in the medium-term, especially in equities.

On top of continuing foreign direct investment inflows, especially from CPEC-related inflows from China, foreign portfolio investment should also continue to improve, going forward, as attractive fundamentals, rapidly reducing COVID-19 cases and stable PKR make a good investment case for the country, he added.