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Could Pakistani rupee drop to 80 against dirham in fresh lows?

The currency will remain under pressure ahead of IMF team visit to Islamabad to complete 9th review of $6 billion programme

The Pakistani rupee will remain under pressure and may hit fresh lows against the US dollars, the UAE dirham and other major currencies next week as foreign exchange reserves dropped to below $4 billion threshold, experts say.

The rupee, which shed around 14.34 per cent of its value against the greenback this week and hit all-time low of 262.60 against the US dollar (71.55 against the UAE dirham) in the interbank market on Friday, will not be able to recover its losses unless the government strikes a deal with the International Monetary Fund (IMF) team next month.

The fund's team is expected to start 10-day visit to Pakistan on January 31 to complete the ninth review of its $6 billion Extended Fund Facility (EFF) signed in 2019.

"Upon successful completion of the review, Islamabad will be able to get $1.1 billion IMF loan tranche and additional funds from other multinational lenders and friendly nations," according to the analysts and currency experts.

Pakistan is facing a severe economic crisis as the country's foreign exchange reserves dropped to a nine-year low of $3.6 billion and only enough to pay for around three weeks of imports. The South Asian nation has no other option but to resume external financing to ease pressure on its plunging currency as well as to contain rising inflation (24.5 per cent) and rationalise record interest rates (17 per cent).

Samiullah Tariq, head of Research at Pak Kuwait Investment Company, said the rupee will remain under pressure unless the government will take some concrete measures to improve economic indicators and secure external flows from the multinational donors and friendly nations.

"The IMF holds the key, and if the deal is secured next month, then it will not ease pressure on the rupee, but to help revive economy and external debt repayment as per schedule. After the IMF deal, a lot of flows in the informal market would move to formal channels," Tariq told Khaleej Times on Saturday.

The rupee has lost more than 28 per cent of its value against the US dollar during the current financial year 2022-23 so far. It shed around 16 per cent of its value in January amid political instability and weak economic indicators of the country.

On Friday, the rupee closed the week on negative note after losing 2.73 per cent of its value against the US dollar. It closed at 262.60 (71.55 against the UAE dirham) in the interbank market while it was exchanging hands at around 270 (73.56 versus the dirham).

The previous official low of 240 rupees was recorded in July 2022.

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The rupee depreciated 9.6 per cent, or Rs 24.53, against the US dollar in the interbank trading on Thursday and closed at Rs 255.42 (69.59 versus the dirham) against the previous day’s closing of Rs 230.89, according to the State Bank of Pakistan data.

"The 9.6 per cent decline of the rupee is the second-biggest drop in a single session," according to Karachi-based brokerage Topline Securities.

Market insiders expect that the rupee may continue its downward trend and may drop to 300 against the US dollar (81.74 versus the dirham) if the government fails to secure the IMF deal and improves economic indicators such as exports, remittances, and revenue generation.

Zafar Paracha, Secretary General, Exchange Companies Association of Pakistan, said the rupee remained under pressure against the US dollar in the last two days of the week, shedding 12.34 per cent of its value in the interbank market.

"The currency dived to historic lows against the greenback after an exchange cap lifted ahead of vital talks with the IMF next week. Now, the chances of securing the fund's deal are high that will help unlock $10 billion to $12 billion inflows into the country," Paracha told Khaleej Times on Saturday.

In reply to a question, he said there is still a wide gap between the interbank and open markets as the one US dollar was fetching 6-8 additional rupees in the open market.

"The interbank rate is expected to stabilise around 270 against the US dollar (73.56 versus the dirham) and the gap with the open market will reduce gradually once the foreign exchange inflows start after the IMF deal. It will also help boost remittances, which showed a downward trend because of flourishing hawala/hundi business in the past few weeks," he said.

Rupee movement in interbank