Rupee hits new low as importers rush for dollars

Published September 30, 2021
Experts and analysts believe the only way to arrest the decline in the rupee’s value is to reduce imports and increase exports. — Reuters/File
Experts and analysts believe the only way to arrest the decline in the rupee’s value is to reduce imports and increase exports. — Reuters/File

KARACHI: The US dollar continued its upward spiral against the rupee, hitting a new peak of Rs170.48 after posting a gain of 52 paisa in the interbank market on Wednesday amid a strong demand as growing imports exerted pressure on the already fragile local currency.

The dollar has surged by 11.5 per cent against the rupee since May 7. However, in September it appreciated by 2.4pc as it gained on a daily basis except a few days when the State Bank of Pakistan (SBP) intervened to support the rupee.

Experts and analysts believe the only way to arrest the decline in the rupee’s value is to reduce imports and increase exports while quick and strict measures are also required to change the market sentiments that are weakening the currency. “Primarily it is the trade deficit which is putting pressure on the exchange rate, but it is not enough to say that imports are very high,” said Tahir Abbas, head of research at Arif Habib Ltd (AHL).

“The entire world is facing a commodity super-cycle phenomenon. The price of every commodity is going up which is increasing the cost of imports and creating trade imbalances,” he said, adding that there is a chance that Pakistan would succeed in winning the confidence of IMF and receive the remaining tranches under the loan programme.

“The possible successful deal with IMF will certainly boost the morale of the local currency and the importers’ confidence would also improve. The importers are in race to buy and book maximum dollars for their future imports which has heated up dollar buying,” he added.

“On the long run we should boost production of those products we need each year. For example we need about 2 million tonnes of DAP for agriculture sector while we produce about 0.75m tonnes and we have to import the shortfall,” he said.

“The current price of DAP in the international market has reached $675 per tonne which means we need to spend about $900m for DAP import,” he said, adding that it is an unnecessary burden on the economy.

He said the change of regime in Afghanistan is one of the reasons for higher buying of dollars. “No official figures are available but the estimate is that $5m to $7m is being taken to Afgha­nistan each day since the country has lost all business while its reserves of $10bn have been seized by the United States.

He said the petroleum prices are going higher which has also badly impacted the country’s balance sheet and increased the trade deficit. He said prices of all commodities along with food are on the rise.

Another analyst said the only option to strengthen the local currency is to increase exports.

“Our export is about 7pc of GDP while normally it should be 15pc of GDP. If we don’t improve this situation we can’t estimate what will be the real exchange rate in near future,” he said.

“Despite being an agricultural country, our yields of major crops have been declining and now we are importing wheat, cotton and a number of food items. These imports require immediate attention of the government and the situation can be improved,” he added.

He said the way imports have increased in August to $6bn it would be ended with $65 to 70bn at the end of the current fiscal year.

Published in Dawn, September 30th, 2021

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