The rupee extended its losses for the second consecutive session this week, falling by Rs1.64 against the dollar in the interbank market on Tuesday.
Data shared by the Forex Association of Pakistan (FAP) showed that the local currency had fallen to Rs221.5 per dollar by 12:21pm after depreciating 0.74 per cent.
FAP Chairman Malik Bostan said the dollar’s rate had risen because of increased demand for the greenback for duty-free vegetable imports from Iran and Afghanistan.
He said the government would have to ensure that dollars being bought for imports were not “misused”.
Bostan said he expected the “sharp decline” in the rupee’s value to stop once funding amounting to $4 billion was received from friendly countries.
The FAP chairperson claimed that commercial banks were buying the greenback at higher rates because of which the rupee’s value was declining.
“The difference in the rates between the interbank and open markets has risen by Rs10 [per dollar]. This difference had been removed through great difficulty but now higher rates in the interbank market are affecting the open market,” he commented.
Amid the widespread destruction of crops by the recent floods, the government had last week granted exemption of sales tax and withholding tax on the import of tomatoes and onions till December 31. Since then, several trucks carrying the two items have crossed into Pakistan through the Taftan, Chaman and Torkham borders.
Meanwhile, Tresmark’s Head of Research Komal Mansoor said political uncertainty and lack of clarity on future inflows from friendly countries were pushing the rupee lower. In addition, remittances were expected to decline in the coming months, she added.
“As per Tresmark estimates, REER for August-end should go up to 98.50 with parity at 218/$. So we see an adjustment to keep REER around the 92-95 level and that would translate to 222-226 range. If the IMF money is not followed up by friendly countries’ money, PKR will again feel the heat,” she said.
The real effective exchange rate (REER) is the weighted average of a country’s currency in relation to an index or basket of other major currencies. The weights are determined by comparing the relative trade balance of a country’s currency against each country within the index. This exchange rate is used to determine an individual country’s currency value relative to the other major currencies in the index.
The REER is used to evaluate how a currency is fluctuating against many others at once, and is also used in international trade assessments.
The PKR had fallen to a record low of 239.94 on July 28. It had then recovered for 11 consecutive sessions, closing at Rs213.90 in the interbank on Aug 16.
However, the local currency had started falling again from Aug 17, losing Rs8.02 till Aug 29. It gained briefly for three sessions against the greenback before declining again on Friday.