The rupee weakened 1.3 per cent to a new record low of Rs288.5 against the US dollar in the interbank market on Wednesday, a day after former prime minister Imran Khan was arrested by the National Accountability Bureau in Islamabad.

Following the arrest, clashes erupted between Imran’s supporters and police, leaving at least one protester dead. The interior ministry has suspended mobile broadband services in the country.

Pakistan’s international bonds nudged lower with the 2024 issue down 0.4 cents on the dollar, according to Tradeweb data.

The bonds trade at deeply distressed levels with shorter-dated maturities priced at 49 cents on the dollar while longer-dated ones changed hands at around 33 cents.

The PKR was being traded at Rs288.50 per dollar in the interbank market around noon, a decline of Rs.3.66 from yesterday’s close of Rs284.84.

In the open market, it was being traded at Rs295, falling Rs5 from yesterday’s close of Rs290.

Zafar Paracha, general secretary of the Exchange Companies Association of Pakistan, said the unrest in the country after Imran’s arrest as well as yesterday’s comment by Moody’s, warning that the country could default if it fails to get a bailout from the International Monetary Fund by June, were behind the sharp decline in the local currency.

Yesterday, Grace Lim, a sovereign analyst with the ratings company in Singapore, told Bloomberg: “We consider that Pakistan will meet its external payments for the remainder of this fiscal year ending in June.”

“However, Pakistan’s financing options beyond June are highly uncertain. Without an IMF programme, Pakistan could default given its very weak reserves.”

Paracha added that these factors had increased dollar demand by importers, adding that pressure on the rupee would continue until the political situation stabilises and the IMF deal is finalised

Saad Naseer of Mettis Global voiced a similar view, attributing the local currency’s fall to the political unrest.