KARACHI: The greenback gained to record levels against the rupee on Thursday as it climbed a further Rs5.85 in the interbank market and was being traded at Rs167.45, Geo News reported.
The dollar has gained Rs8.45 in the past three days as a back-to-back reduction in interest rates catalyses foreign capital flight from Pakistan’s debt market.
On Wednesday, the rupee had fallen 1.63% or Rs2.60 versus the dollar to close at Rs161.60. It had closed at 159 to the greenback in the previous session.
In open trade, the rupee had fallen Rs1.50 to end at Rs160 per dollar.
Traders said foreign investors were upset over the sudden decision to slash the policy rate by the central bank and resorted to panic selling of treasury bills (T-bills), according to a report in The News.
The market is under a float regime that indicates further depreciation in the parity in coming days, they said.
“With the sharp and unexpected rate cut and huge stimuli, the rupee should have weakened by around 5 to 7%, but the rupee held better than expected,” said Eman Khan, an analyst at Tresmark, an application that tracks financial markets.
The State Bank of Pakistan (SBP) lowered policy rate by a cumulative 225 basis points to 11% in two monetary policy announcements in a week.
This emergency move was designed to help the struggling economy cope with the fallout of a preventive lockdown as the coronavirus disease breaks out nationwide.
Foreign investors sold a net $95 million worth of T-bills on March 24, the SBP’s data showed. With this repatriation, total divestment in March reached $1.501 billion.
Zeeshan Azhar, an analyst at Foundation Securities said domestic investors are moving money from bank deposits to hoarding dollars.
“PKR should continue to decline for a few more days as the SBP has also said that it is monitoring the situation and stands ready to act further should the need arise,” Azhar said. “If the SBP is intervening in the PKR-USD market by selling dollars, then its FX reserves would fall.”
Dealers said the rupee came under severe pressure against the US currency after significant outflows of capital from the stock market and government bonds.
“The central bank didn’t intervene in the foreign exchange market to address liquidity or excessive market moves in the local currency,” a forex dealer, who declined to be named, told The News.
Analysts said the COVID-19 turmoil is likely to hurt balance of payments in future. The expected decline in remittances and exports could put pressure on the current account deficit. However, drop in oil prices could lead to reduction in oil import bills.