Exchange rate volatility is expected to continue

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KARACHI: Exchange rate volatility is expected to continue next week, due to rising dollar demand for imports and business payments by year end.

The rupee ended the week with an all-time low of Rs 178.04 on December 17, 2021. The local currency lost 33 paisas, or 0.2%, during the week, despite severe measures taken by the Bank of Pakistan State (SBP) substantially increase the policy rate.

Dealers believe the demand for foreign currency was much greater than the measures taken by the regulator.

The Saudi Development Fund’s (SDF) $ 3 billion deposit with the State Bank of Pakistan (SBP) also failed to support the rupee.

Last week, the Saudi Fund placed the amount with the Pakistani central bank, which helped boost official foreign exchange reserves.

The latest foreign exchange figures revealed that reserves fell by $ 123 million to $ 25.028 billion in the week ending December 10, 2021. SBP’s official reserves fell by $ 90 million to $ 18.568 billion in the week ending December 10, 2021, up from $ 18.658 billion a week ago.

Meanwhile, the large import bill remained a big challenge for the stability of the rupee. The import bill rose sharply by 69.17% to reach $ 32.93 billion in the first five months (July-November) 2021/22, compared to $ 19.47 billion in the same period of l ‘Previous exercice.

The increase in the import bill has massively widened the trade deficit. The trade deficit swelled 112 percent to $ 20.59 billion in the first five months of the current fiscal year, from a deficit of $ 9.72 billion.

Likewise, foreign inflows are not sufficient to meet the demand for external payments.

The country’s exports grew 27 percent to $ 12.34 billion in the first five months of the current fiscal year, compared to $ 9.74 billion in the corresponding period last fiscal year.

Meanwhile, inflows of foreign funds sent from overseas Pakistanis declined in November 2021, compared to the previous month’s inflows. Remittances amounted to $ 2.352 billion in November 2021, up from $ 2.517 billion in October 2021.

The rupee has remained under pressure since the start of the current fiscal year. The local currency fell from Rs 20.50, or 13.01%, from June 30, 2021 to the close from Rs 157.54 to the close of Rs 178.04 on December 17, 2021.


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