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Pak rupee hits new lows, central bank hikes rate by 1.5% to 13.75%

The rupee shed 27.54 per cent (or Rs43.39) of its value during the current financial year compared to the previous fiscal year’s close at Rs157.54.

Pakistan’s central bank on Monday raised the key policy rate by 150 basis points to 13.75 per cent, the second hike in less than two months.

“This action, together with much needed fiscal consolidation, should help moderate demand to a more sustainable pace while keeping inflation expectations anchored and containing risks to external stability,” the State Bank of Pakistan (SBP), the central bank, said in a statement.

The hike comes as the country is going through economic turmoil, including high inflation, declining reserves and a fast-weakening currency, which closed 0.39 per cent down at 200.93 against the dollar (54.74 against the UAE dirham) in the interbank market on Monday. The local currency surpassed 201-mark against the grenback during the intra-day trade, but recovered some grounds in the final session.

In the opening market, the US dollar was sold at 202.25, according to the Forex Association of Pakistan. However, some dealers are selling the greenback at an even higher rate due to its high demand in the market.

The rupee shed 27.54 per cent (or Rs43.39) of its value during the current financial year compared to the previous fiscal year’s close at Rs157.54.

Analysts and market insiders pin hopes on talks with the International Monetary Funds (IMF) in Doha to bring stability in the economy and the exchange rates. Last week, the government had imposed a ban on the import of luxury and non-essential items to curtail rising import bill, check rising current account deficit and decline in the country’s foreign exchange reserves, which dropped to around $10 billion dollar on May 13.

“The Monetary Policy Committee’s baseline outlook assumes continued engagement with the IMF, as well as reversal of fuel and electricity subsidies together with normalisation of the petroleum development levy and GST taxes on fuel during fiscal year 2022-23. Under these assumptions, headline inflation is likely to increase temporarily and may remain elevated throughout the next fiscal year. Thereafter, it is expected to fall to the 5-7 per cent target range by the end of financial year 2023-24,” the SBP statement said.

The central bank said the rupee depreciated further due both to domestic uncertainty as well as recent strengthening of the US dollar in international markets following tightening by the Federal Reserve.

“After contracting by 0.9 per cent in financial year 2019-20 in the wake of Covid, the economy has rebounded much more strongly than anticipated, growing by 5.7 per cent last year and accelerating to 5.97 per cent this year,” the central bank said while referring to provisional estimates.

— muzaffarrizvi@khaleejtimes.com