Rupee falls for second straight session

KARACHI: The rupee on Friday weakened further against the dollar in both the currency markets on high dollar demand, dealers said.

In the open market, the domestic currency closed at 225 to the dollar, compared with 222 on Thursday. It lost 3 rupees on a day-on-day basis.

The rupee has been losing ground weighed down by soft supplies.

“We are facing a dearth of dollars that has put pressure on the rupee. The demand is high and the supply is low as people are reluctant to sell dollars in the kerb market,” said a currency dealer.

“The smuggling of dollars from Peshawar to Afghanistan has also made things worse,” the dealer added.

The local unit ended at 218.98 per dollar, 0.17 percent weaker than the previous close of 218.60 in the interbank market.

Dealers expect the rupee to stabilise in the 220-225 range for the next 2-3 months.

The International Monetary Fund (IMF), in its country report on Pakistan released after the executive board completed the seventh and eighth reviews of the Extended Fund Facility, sees the rupee to trade at 226 against the dollar in the current fiscal year and 241 in FY2024.

On Wednesday, the State Bank of Pakistan received a $1.16 billion loan installment from the International Monetary Fund (IMF) under the Extended Fund Facility, but the market didn’t react to it. The IMF deal and its disbursement had already been factored in by the investors.The investors are more concerned about the economic fallout of the catastrophic flood that has killed 1,100 people in Pakistan

Analysts said recent floods in various parts of the country have caused major losses to human lives, infrastructure, and crops. Recently, the government’s initial estimates showed losses caused by floods were close to Rs2 trillion (2 percent of GDP).

“Considering this, it is likely that Pakistan’s fiscal deficit may clock in between 6-7 percent of GDP for FY2023. It is also expected that the IMF considers the potential impact of floods and provides some relaxations, especially if Pakistan continues to remain steadfast in implementation of the reform agenda agreed with the IMF,” said Topline Securities in a report.

IMF also approved Pakistan’s request to increase the size of the program by $1 billion and extend the program till Jun 2023 instead of September 2022.

“Waivers on performance criteria and extension in programme tenure will provide the much-needed support to the Pakistan economy. The IMF has recommended Pakistan authorities restore fiscal and debt sustainability, safeguard monetary and financial stability and maintain a market-driven exchange rate,” the report added.

The IMF has projected GDP growth of 3.5 percent in FY2023 with a current account deficit of 2.5 percent of GDP ($9bn) and inflation at 19.9 percent.