Rupee Falls Below 268 Against US Dollar Amid Tricky IMF Talks

Pakistani rupee (PKR) reversed yesterday’s gains against the dollar today as talks with the International Monetary Fund (IMF) intensify.

It rose as high as 265 against the greenback but later depreciated by 0.35 percent and closed at 268.83 after losing 94 paisas against the greenback. Despite today’s losses, the wider consensus is that the PKR is undergoing correction while markets await the IMF’s decision in the coming days.

Today’s losses come just a day after the PKR halted its 29-day losing streak when it lost over Rs. 35 between Wednesday and Friday.

The local unit was initially green against the greenback and opened trade at 265.25. in the open market. By midday, the greenback moved higher against the rupee to as high as 265 After 1 PM, the local unit started reversing gains and fell to the 267 level against the top foreign currency before the interbank close.

The rupee reported losses against the US Dollar today as markets react to a tough round of talks between Pakistan and the IMF today. Money changers said exporters’ mood has changed dramatically since PKR’s recent lows and were regularly seeking external loans despite the rupee’s bearish performance today. This shows confidence in the market free-float even if the wider public opinion seems against it.

Meanwhile, today’s PKR slump was aided in part by news that the government had finalized new taxes worth Rs. 300 billion in consultation with the IMF.

In addition to the exchange rate ‘correction’ observed today, Pakistan’s Consumer Price Index-based inflation has further increased to 27.6 percent on a year-on-year (YoY) basis in January 2023, according to the Pakistan Bureau of Statistics (PBS). At 27.6 percent, this is the highest inflation reading recorded in Pakistan since May 1975. With food inflation at 43 percent, the impact of the rupee devaluation and petrol/electricity/gas is yet to be realized.

The crisis-stricken country is experiencing a severe balance of payments crisis and has only about three weeks’ worth of import coverage in foreign exchange reserves. Pakistan is frantically attempting to secure foreign financing in order to avoid default.

The central bank’s foreign exchange reserves were $3.7 billion as of January 20. It should be noted that, following the government’s decision to lift the self-imposed cap last week, exporters took out more loans, despite the fact that export activity was low. This implies that exporters borrowed in local currency but did not remit overseas.

The PKR was bearish against all of the other major currencies in the interbank market today. It lost 25 paisas against the UAE Dirham (AED), 26 paisas against the Saudi Riyal (SAR), Rs. 1.95 against the Australian Dollar (AUD), Rs. 2.12 against the Euro (EUR), and Rs. 2.59 against the Canadian Dollar (CAD).

Moreover, it lost 31 paisas against the Pound Sterling (GBP) in today’s interbank currency market.