KARACHI, Oct 7: The rupee edged to a record low to the dollar during the last few minutes of inter-bank trade on Tuesday, weighed down by worsening economic fundamentals and unrelenting demand for dollars to cover imports.

The rupee closed at 78.65-75 to the dollar in inter-bank market. The previous low was made at 78.65 on Monday. The rupee has lost 21.7 per cent since the beginning of the year.

In the kerb market, the rupee crossed 79 to the dollar for the first time.

With red lights flashing across Pakistan’s macroeconomic dashboard, the rupee is expected to remain under pressure following a credit rating downgrade by Standard & Poor’s rating agency.

S&P cut Pakistan’s sovereign rating further into junk territory on Monday, saying the country’s worsening external liquidity may imperil its ability to meet about $3 billion in upcoming debt obligations.

Pakistan is struggling with inflation at more than 25 per cent, and a widening current account deficit, and heavy government borrowing to cover a budget deficit.

The central bank has just enough foreign currency to cover two months of imports, and a potential default on a sovereign loan is looming in February.

Pakistan has a $500 million euro bond debt obligation due in February next year, but analysts believe a default to be averted.

“Risk of default on the bond debt obligation due in February 2009 may be a bit exaggerated,” said Farhan Rizvi, a senior analyst at JS Global Capital.

“But if reserves continue to fall at $800 to $900 million per month, then certainly, the concern to default will rise too.” Pakistan’s foreign reserves fell $690 million to $8.13 billion in the week that ended on Sept 27 from $8.82 billion the previous week, while the central bank’s own reserves fell to $4.68 billion from $5.41 previously.

In the money market, overnight call rates eased to below 20 per cent due to maturity of government bonds and treasury bills, but dealers expect rates to remain high due to a liquidity crunch resulting from Pakistan’s chronic balance of payment deficit.—Reuters