Rupee continues downward spiral, falls to Rs108.5 against US dollar

In a volatile trading session on Friday, the rupee slumped to 109.50 per dollar at one point after opening at 105.55

LAHORE: The rupee on Monday morning depreciated further against the US dollar to Rs108.5 in the inter-bank market after closing on Friday at Rs107.

The rupee slipped to as low as 110 per dollar, before recovering some of the losses to stabilize at 108.50 by midday local time, traders said.

There was talk of SBP letting rupee walk on its own and take a few falls over the next few days. Exporters and economists had been demanding the depreciation of the rupee, since it was diminishing the country’s foreign exchange reserves and making exports uncompetitive.

In July, Moody’s Investor Service said the rupee was 20 percent overvalued and had urged the State Bank of Pakistan (SBP) to show some flexibility and let the PKR depreciate.

In a volatile trading session on Friday, the rupee slumped to 109.50 per dollar at one point after opening at 105.55. It closed at 107 per dollar, according to the State Bank of Pakistan (SBP), after having mostly traded in a tight range of 104-105 per dollar since December 2015.

This mimicked rupee’s sharp fall on July 5th both in the interbank and kerb market when it reached a then 2.5 year high of Rs108.

A press release issued by central bank on Friday read “SBP is of the view that this market-driven adjustment in the exchange rate will contain the imbalance in the external account and sustain higher growth trajectory. The exchange rate will continue to reflect the demand and supply conditions; and SBP stands ready to intervene, in case speculative and/or momentary pressures emerge, for smooth functioning of the foreign exchange markets.”

The current rupee depreciation is being attributed to pressure of payments on the external front which is fueling appreciation of the dollar.

Profit recently reported State Bank of Pakistan Deputy Governor Jameel Ahmad, in an interview with Bloomberg, said that the widening of trade and current account deficit are not something to be worried about as Pakistan’s exports are rising and imports are being constrained.

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Mohammad Farooq
The author is an Assistant News Editor at Profit by Pakistan Today. His works have been published in Dawn, Express Tribune, LiveMint India, Huffingtonpost India and The News on Sunday. He tweets @MohammadFarooq_
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