KARACHI: Geopolitical uncertainty with fluctuations in the exchange rate kept hitting hard the local currency as it lost 48-paisa against the US dollar on Tuesday.

The greenback price rose to Rs176.23 in the interbank market after losing 11-paisa a day earlier.

Despite higher inflows in the account of the State Bank of Pakistan (SBP), the rupee could not get stronger and this was mostly due to the high demand for dollars from importers.

“The rupee gains for a brief period against the dollar but most of the time the US currency remains dominant,” said Atif Ahmed, a currency dealer in the interbank market.

The US dollar was appreciating on the international currency market mainly due to four times higher oil prices. Oil payments are made in dollars so the demand for the US currency is high globally.

On the other hand, Pakistan is paying the highest amount for oil imports, which created serious trade and current account imbalances.

During the first half of 2021-22, the current account deficit swelled to $9 billion and it may rise further in the remaining months of this fiscal year.

The SBP has yet not issued the current account number for January.

“The signs are visible for higher trade and current account deficits since the higher imports will further widen the current account deficit and this is why the market is unable to favour the local currency,” Atif remarked.

The recent inflow of $1bn from the IMF and $1bn sukuk proceeds improved the SBP reserves but it had seen an outflow of $3bn since August 2021.

The market fears that the growing economic relations of Saudi Arabia and India could cast a negative impact on Pakistan since the highest remittances are received from the Arab country.

Pakistan depends largely on remittances even more than exports. The country expects to receive a total of $30bn in FY22 as $18bn was sent home by overseas Pakistani in July-January period.

“If Pakistanis in Saudi Arabia lose jobs, it will create an immense problem for Pakistan and the dollar domination would be more acute,” he said.

Published in Dawn, February 23rd, 2022