Friday, April 08, 2022

Supreme Court verdict snaps rupee's record-breaking downward streak against US dollar

Rupee finally makes comeback against US dollar, closing at Rs184.68 in the interbank market on back of SC verdict, interest rate hike

A currency dealer counts Rs5,000 notes. — AFP/File
A currency dealer counts Rs5,000 notes. — AFP/File

  • Rupee finally makes a comeback against the US dollar.
  • Closes at Rs184.68 in interbank market on back of SC verdict, interest rate hike.
  • Cumulatively, during the week ended April 8, rupee sheds Rs1.2 against greenback.

KARACHI: Owing to Supreme Court's historic verdict, the rupee snaps a 17-day record-breaking downward streak against the US dollar, recording the highest single-day recovery since April 17, 2020.

The Pakistani currency broke all records during the last 17 days dropping to an all-time low of Rs188.18 against the greenback; however, with clarity on the political front following Supreme Court's order to restore the National Assembly after it declared the government's decision to dissolve the assembly and NA Deputy Speaker Qasim Suri's ruling against the Constitution revived investors optimism.

According to the State Bank of Pakistan (SPB), the rupee appreciated by Rs3.5 (or 1.9%) to close at Rs184.68 against the US dollar.

Cumulatively, during the week ended April 8, the local unit lost Rs1.2 (or 0.65%) against the US currency.

Read more: Pakistan's pace of economic growth to slow down to 4% in FY22, says ADB

Analysts and currency dealers believe that much-needed clarity on the political front reinvigorated investors' confidence in riskier assets.

It is worth mentioning that a day earlier, the central bank in a surprise move jacked-up benchmark interest rate by 250 basis points to 12.25%.

The rupee has maintained a downward trend for the past 11 months. It has lost 21.28% (or Rs32.41) to date, compared to the record high of Rs152.27 recorded in May 2021.

With a fresh rise of 1.9%, the Pakistani rupee has depreciated by 17.22% (or Rs27.14) since the start of the current fiscal year on July 1, 2021, data released by the central bank revealed.

Keeping in view the massive plunge of the rupee, former finance minister Dr Hafiz Pasha had told that it is “extremely important” that the authorities take “extreme measures” during these dire times.

Read more: Economy will bear brunt of constitutional crisis, say analysts

Elaborating further on these measures, he shared the two steps that, if taken, can control the out of hand currency devaluation. They are:

  • Imposing import quotas on non-essential imports (luxury items)
  • Once the imports are curtailed, SBP should intervene in the market

He had predicted that once Supreme Court’s verdict is there will be some clarity on the political front which will help the currency market — which was correct as the rupee posted a smart recovery today after a bleak month.

Reiterating his stance on the extreme measures, Pasha said that imposing import quotas is very important because it takes years to increase exports; however, imports can be curtailed within a short-time period.

Read more: Trade deficit widens to $35.4 billion in July-March

“If we manage to contain the rising imports, the rupee is expected to close the ongoing fiscal year 2021-22, ending on June 30, slightly above Rs200 against the US dollar, he said, mentioning that if this doesn’t happen and political crisis continues to deepen then “floor will go out of our hands.”

Meanwhile, open market forex rates of other currencies against the Pakistani rupee are as follows:

Australian dollar
 Canadian dollar
China yuan
Japanese yen
Saudi riyal
UAE dirham
UK pound sterling
US dollar186.3