Widening exchange rate gap takes toll on rupee

• Rupee closes at 225.40 against US dollar after losing 0.12%.
• Analysts expect the rupee to lose more ground in the days ahead.
• Fahad Rauf says govt will not be able to hold rupee for long.

KARACHI: The Pakistani rupee Wednesday continued to weaken against the US dollar in a widening exchange rate gap in the interbank and grey market.

The local currency closed at 225.40 against the greenback compared to Monday’s close of 225.12 after a loss of 0.12%, data released by the State Bank of Pakistan (SBP) showed.

In the open market, however, the domestic currency ended steady at 234.5 to the dollar for the third consecutive session.

Analysts expect the rupee to lose more ground in the days ahead.

They believe the currency would fall further on an increased difference between the interbank and grey market rates, delays in the International Monetary Fund (IMF) loan, and lack of external funding in the country.

“The government would not be able to hold it [rupee] for long. The rate has to adjust to close the gap versus the black market, especially if expected flows from Saudi Arabia do not materialise,” Fahad Rauf, head of research at Ismail Iqbal Securities told The News a day earlier.

The market hasn't heard anything yet regarding friendly countries giving Pakistan financial support. Even the expected refinancing of $1.2 billion from Chinese commercial banks didn’t happen. The IMF loan programme continues to be shrouded in doubt.

However, a sharp reduction in the current account deficit provided some support to the dwindling foreign reserves. 

The country’s current account deficit narrowed by 86% year-on-year to $276 million in November. During July-November fiscal year 2023, the current account deficit contracted by more than half to $3.1 billion, against $7.2 billion in the same period last year.

The central bank’s foreign exchange reserves have dropped to $6.7 billion, hardly enough for a month's worth of imports.