KARACHI: Amid a strong demand for dollars from panicky importers, the local currency could not put up any resistance and plunged to an all-time low at Rs169.60 against the greenback in the interbank market on Monday.

Currency dealers said the interbank market was full of speculative reports and observations which hit the exchange rate negatively bringing the rupee under massive pressure.

Meanwhile, in the open market the dollar was selling at Rs171.60.

“The currency market is now working like a stock market: highly speculative, news based and [vulnerable to] rumours about the country’s economic health particularly external account,” said Atif Ahmed, a currency dealer in the interbank market.

Along with speculation, the demand was still high which is why the dollar appreciating on a day-to-day basis. “Highly speculative market creating a panic-like situation and importers are booking dollars at whatever rates are available,” added Mr Atif.

The State Bank of Pakistan (SBP) last week amended the prudential regulations to slow down speedy growth in imports which swelled to over $6 billion in August alone.

The SBP said the targeted step would help to moderate demand growth in the economy, leading to slower import growth and thus supporting the balance of payments.

Currency dealers fear that the balance of payments could see a reverse trend as in the first two months (July-August) of FY22 the country recorded a current account deficit (CAD) of $2.29bn against $1.8bn in entire FY21 dipping from an all-time high of $20bn in FY18.

Oil import bill swells

Another set of SBP data showed that the country’s oil import bill increased by 87pc to $2.43bn in 2MFY22 compared to $1.301bn in the corresponding period due to high global oil prices and increased local consumption.

The country spent $9.747bn on import of petroleum products in FY21 and the current trend suggests that the bill for FY22 could be much bigger as petroluem accounts for up 18pc of overall imports of the country.

“Despite depreciating local currency the situation is not that bad as being presented because the country’s foreign exchange reserves have grown to over $24bn, exports are increasing while remittances are on the higher side,” said Zafar Paracha, chairman of the Exchange Companies Association of Pakistan.

He said there is a need to curtail surging imports, which are the main reason for imbalances and speculation in the market.

The SBP has recently said changes in the prudential regulations effectively prohibit financing for imported vehicles. According to new changes, the maximum tenure of auto finance has been reduced from seven to five years.

Published in Dawn, September 28th, 2021