The US dollar continued to set new records on Tuesday as it rose to Rs212 against the local currency during early morning trade in the interbank market.

According to the Forex Association of Pakistan (FAP), the rupee depreciated by over Rs2 to reach an all-time low of Rs212 against the dollar from Monday's close of Rs209.96. Yesterday, the greenback appreciated by a sharp Rs1.21 — a trend persisting for over a week now.

According to Mettis Global — a web-based financial data and analytics portal — the rupee has incurred a colossal loss of Rs6.4 during five consecutive sessions last week.

Komal Mansoor, head of research at Tresmark, told Dawn.com that it seemed as if the country was now completely relying on an IMF bailout.

"There is some support for the rupee around the current 211 level, but we see a gradual depreciation of rupee on a daily basis till such time that the IMF staff-level agreement is signed," she said.

The IMF loan facility, meanwhile, has been stalled since early April as negotiations with the international money lender remain inconclusive, with the lender earlier expressing reservations over fuel and energy subsidies introduced by the previous PTI government and now over targets set by the new government for the upcoming fiscal year.

Pakistan had signed a 39-month, $6bn Extended Fund Facility with the IMF in July 2019, but the Fund stopped the disbursement of about $3bn when the previous government reneged on its commitments and announced fuel and energy subsidies.

Yesterday, Finance Minister Miftah Ismail expressed hope that an agreement with the IMF for the revival of the Extended Fund Facility (EFF) would be reached "within one or two days".

Before his optimism, a Dawn report, quoting diplomatic sources, said the United States has agreed to help Pakistan negotiate a deal with the IMF.

Earlier, media reports had claimed that Islamabad was “seeking Washington’s support” for renewing its Extended Fund Facility (EFF) with the IMF. As the largest shareholder, the US has considerable influence over the IMF’s decision-making.

Depleting foreign exchange reserves 'putting pressure'

FAP chairman Malik Bostan blamed the rapidly depleting foreign exchange reserves for "putting pressure" on the rupee.

"After a long time, foreign exchange reserves have fallen to single digits, which has worried the market," he said.

According to SBP, Pakistan’s reserves have fallen by another $234 million to close just below $15 billion in all. The central bank's share in these reserves is just under $9 billion.

Secondly, Bostan added, demand for the dollar is high because of the upcoming Haj season. "Over 400,000 Pakistanis are going for Haj this year and are buying dollars. This is adversely impacting the local currency."

Rumors of stopping LCs

Earlier, a Dawn report said that the currency market was gripped by uncertainty and rumours that banks have stopped opening letters of credit (LCs)

Such a situation was, however, denied by the central bank. “State Bank has not stopped banks from making import payments. Even today, roughly about $200m import payments have been executed,” SBP Chief Spokesman Abid Qamar said.

Meanwhile, the SBP has required prior approval before the opening of LCs or registration of contracts for certain types of imports like cars (CKD), cellphones and certain types of machinery. But these instructions were issued on May 20 and not today, he said.

On May 20, the SBP issued a circular after the decision of the federal government to ban imports of luxury and non-essential goods. The decision meant to consume fewer dollars while saving the economy from imported inflation. So far, the country’s import bill has already crossed $70 billion in the outgoing year.