KARACHI:
In an unexpected move, the Pakistani currency plunged to a three-week low at Rs279.57 against the US dollar in the interbank market, ending nearly two weeks of stability. This sudden decline comes amidst a reduction in inflows of foreign currencies into the system.
The overvalued currency in the interbank market seemed to have taken cues from the declining open market rates, especially against the backdrop of political uncertainty and its potential impact on securing the next IMF loan programme, crucial for stabilising the local economy.
In a recent development, the inflows of foreign currency sent home by overseas Pakistanis through Roshan Digital Accounts (RDA) slowed down to $142 million in January 2024, compared to $160 million in the previous month of December 2023, according to State Bank of Pakistan (SBP) data.
The domestic currency dropped by 0.07% or Rs0.21, closing at a three-week low of Rs279.57 against the greenback, as per SBP data.
Previously, the currency had gained around 10% or Rs28 over the past five months, reaching a three-month high of slightly over Rs279/$ until last week in the interbank market, compared to the record low of Rs307.10/$ in the first week of September 2023.
The Real Effective Exchange Rate (REER) matrix suggests that the currency was overvalued at previous week levels and required some depreciation to make imports more expensive and exports more competitive. The REER appreciated to 101.7 in January from 98.8 in December 2023.
In the open market, according to the Exchange Companies Association of Pakistan, the currency extended losses by a further 0.05%, or Rs0.16, closing at Rs282.32/$, maintaining its downturn for the eighth consecutive working day in the smaller market. The disparity in the value of the rupee between the interbank and open markets widened to Rs2.75 (almost 1%).
Published in The Express Tribune, February 21st, 2024.
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