Pakistani rupee plunged to an all-time low against the US dollar and UAE dirham on Thursday, dragged down by outflow of investment from T-bills and impact of coronavirus on the economy that can create more problem for Prime Minister Imran Khan.
Data from xe.com showed that the rupee plummeted to an all-time low of 45.6 against the UAE dirham or 167.35 versus the US dollar. The rupee came under pressure after State Bank of Pakistan (SBP) eased foreign exchange regulations to facilitate import of medical equipment to fight coronavirus.
SBP has allowed all federal and provincial government departments, hospitals in public and private sectors, charitable organisations, manufacturers and commercial importers to make Import Advance Payment and Import on Open Account, without any limit, for the import of medical equipment, medicines and other ancillary items for the treatment of Covid-19.
The rupee has been steady over the past couple of quarters after Islamabad signed a $6 billion agreement with the International Monetary Fund (IMF) to stabilise the economy.
The Fund had asked Islamabad to allow the free float of currency and let market dynamics settle the forex rates. Since then, the SBP didn’t intervene in the market to prop the currency.
The rupee’s previous all-time low was hit on July 1, 2019, when it had crashed to 44.5 versus dirham.
In Pakistan, the United States dollar continued its climb against the rupee on Thursday, closing at an all-time high of Rs167 in the interbank market, according to rates provided by the Exchange Companies Association of Pakistan.
Compared to the opening value of Rs162.5, the dollar rose by Rs4.5, which translates into an increase of 2.77 per cent.
Similarly, the rates provided by the State Bank of Pakistan’s ready counter showed the greenback at Rs166.1, up from the opening value of Rs161.6 – again, a jump of Rs4.5.
“Foreigners are unloading their holdings in the T-bills prematurely due to the fear caused by the coronavirus, which has pushed up the demand for dollars in the interbank. Once that subsides, the situation will ease,” said Forex Association of Pakistan President Malik Bostan.
In addition, the emergency rate cut by the State Bank of Pakistan on Mar 24 has further hastened foreign unloading in the treasury bills, which do not offer as high a return anymore, according to currency dealers.
During this month, foreigners have divested over $1.5 billion from the T-bills, with outflows on Mar 25 alone standing at $71m.
Meanwhile, the open market witnessed no change as the dollar held steady at Rs160 but that is largely because the exchange companies were mostly closed due the ongoing lockdown.
“Operations were not even 1pc of the original level with only a handful of branches open with little to no customers,” said Bostan.
Due to this, exchange companies haven’t been able to supply cash to the interbank market, which has also put the rupee under strain, he added.
“The government is negotiating with multilateral parties for a $3.7bn coronavirus relief package. If done correctly, it is possible that Pakistan may have a soft landing once the crisis dies down – and that’s a long way from now,” said Eman Khan, an analyst at Tresmark.
Within the past two days, the dollar has gained Rs8, as compared to Wednesday’s opening value of Rs159, representing a rise of 5.03pc.
After staying calm for almost half a year, the currency market started witnessing volatility from March 9 when rupee lost Rs3.65 in a single day.
Since then, the dollar has jumped a cumulative Rs11.75 (or 8.3pc) to Rs167 as of today’s close.