KARACHI: The rupee showed strong resistance against the US dollar during 2020 despite serious repercussions of Covid-19 on the economy. The local currency depreciated by 3.29 per cent against the greenback between Dec 31, 2019 to Dec 30, 2020.

Since the beginning of 2020, the Covid-19 started expanding on a global level and reached Pakistan by the end of February. The country’s performance in the external sector had started improving while local bonds attracted over $3 billion.

However, the emergence of Covid-19 in February and its fast growth convinced investors to take back their investments in the local bonds which drastically impacted the country’s foreign exchange reserves. The outflow of this investment reduced the State Bank of Pakistan’s (SBP) reserves and badly hit the exchange rate.

The dollar was traded at Rs154.55 in February before shooting up to Rs166.5 in March the same year. This was the direct impact of the Covid-19 in the country. Most of the $3bn investment in the local bonds left the country within the next three months as well.

The dollar was traded at the highest price of Rs168.20 in June in the inter-bank market while it reached about Rs170 in the open market. The dollar remained high till September when it was traded at Rs165.85.

The depreciation of the greenback against the local currency started in October as it fell to Rs160.35. Since October, the dollar has hovered around the same level with slight fluctuations.

“Since the exchange rate is almost at the same level for the last three months, I believe it will continue at the same price in the next three months,” said Forex Association of Pakistan President Malik Bostan.

For the last six months, the current account posted a surplus which helped the foreign exchange reserves of the SBP to improve while supporting the exchange rate.

The inflow through remittances was another reason for the stability in the exchange rate. For the last five months of the new fiscal, the country has been receiving over $2bn per month which has also lent additional support to the exchange rate.

The SBP takes the credit for the stability of exchange rate saying that it maintains the free exchange rate regime without interference in the market.

Gold shines

Gold price witnessed a jump of Rs25,600 and Rs21,947 in one-tola and 10-gram in 2020 on the back of $372 per ounce hike in world yellow metal price.

On Dec 31, 2019, the one-tola (24kt) and 10-gram prices were Rs88,400 and Rs75,790 as compared to Rs114,000 and Rs97,737 on Thursday. Inter­national gold price is now $1,894 as compared to $1,522 per ounce.

Published in Dawn, January 1st, 2021