Exchange rate still plagued by uncertainty – Journal

KARACHI: Currency experts and brokers say the exchange rate is still reeling from political and economic uncertainty, even after one of the fastest rallies in the past week.

The rupee has gained 3.5% in the interbank market since April 7 to hit 181.55 on Saturday, according to data from the State Bank of Pakistan.

Prior to this rally, the dollar rose on the back of speculation from currency players amid political unrest.

However, traders believe that the exchange rate may start moving in favor of the dollar again as apparently there is no strength that can protect or strengthen the rupee.

The rupee has strengthened by 3.5% against the dollar in the interbank market since April 7

“The country’s foreign exchange reserves, especially at the State Bank, have declined, which sends a strong negative signal to the currency market,” said Atif Ahmed, a forex trader in the interbank market.

He said the growing import bill showed the trade deficit would continue to widen in the weeks and months to come.

“We paid over $14 billion to import petroleum products in the first nine months [July to March] of this fiscal year, almost twice compared to a year ago,” he said.

Malik Bostan, the chairman of the Association of Exchange Companies of Pakistan, agreed that the situation was far from normal. “Uncertainty is still there. The political crisis is not over yet. We live in the grip of all kinds of uncertainties, which will not allow the exchange rate to stabilize.

He said the country’s economic managers should closely monitor developments in Sri Lanka, which was not attacked by any country, but the country’s economy was still struggling and citizens were on the roads demanding relief. food and fuel. Earlier this week, Sri Lanka announced a default on its $51 billion foreign debt as the island nation grapples with its worst economic downturn since independence in 1948, with regular power cuts and acute food and fuel shortages in addition to record inflation.

Bostan said the outer front of Pakistan’s economy was dangerously exposed, particularly due to falling foreign exchange reserves and resident account holders withdrawing dollars from commercial banks. Pakistanis withdrew $329 million from March 25 to April 8 from commercial banks.

Rising world oil prices and its strong domestic demand have pushed up the import bill. However, bankers and analysts said it was not just the oil import bill that had risen. A surge was also noted in the import of vehicles, machinery and vaccines. The government also imports wheat, sugar and expensive palm oil.

Aamir Aziz, a manufacturer and exporter of finished textile products, said the industry was importing modern textile machinery to compete with countries in the region. He said Bangladesh and India are already working with state-of-the-art machinery.

He said the 8.4% growth in large-scale manufacturing (LSM) in February reflected increased industrial activity. However, LSM growth in July-February averaged 4.6%.

The growth pattern is also reflected in a 170% increase in private sector credit drawdown in the first nine months of the current fiscal year.

However, currency brokers said the dollar outflows from banks and domestic bonds reflected uncertainty on political and economic fronts.

“The demand is still high. Importers are ready to buy more, but State Bank restrictions have kept buying and selling at a certain level,” said Atif Ahmed, the currency trader.

There was no official confirmation, but sources in the financial circle said the paperwork had been completed for the transfer of $2.4 billion from China. Pakistan has repaid the amount owed to China, whose foreign minister has assured Islamabad that the same amount will be deferred.

The rollover will help the State Bank’s foreign exchange reserves, which nearly halved to $10.5 billion this week from $20.07 billion in August.

Bankers said the country still needed $15 billion to service debt and other foreign obligations through the end of June, while widening trade and current account deficits remained the biggest challenge facing the country was facing.

Posted in Dawn, April 17, 2022