KARACHI: The Pakistani currency experienced a gradual depreciation for the second consecutive working day, slipping by 0.17% or Rs0.48 to reach Rs287.91 against the US dollar in the interbank market on Tuesday, as reported by data from the central bank.
In the open market, the currency saw a slight uptick of Rs0.25, bringing the exchange rate to Rs294.75/$, according to the Exchange Companies Association of Pakistan (ECAP). This move led to a marginal reduction in the exchange rate difference between the two markets, now at Rs6.84 compared to the previous day’s Rs7.57. However, the gap remains higher than the IMF’s recommended 1.25% spread.
Market analysts suggest that mounting pressures on the currency are associated with the impending transfer of power to the interim political setup scheduled for Wednesday (today). This comes in the wake of the federal government’s announcement to dissolve the national assembly ahead of the upcoming general elections slated for later in 2023.
Concerns over potential delays in parliamentary polls have also heightened trader anxiety, leading importers paying a premium for foreign currency in local rupees. Despite Pakistan’s commitment to the IMF regarding the elections, any unexpected delays could jeopardise the $3 billion IMF loan, potentially plunging the nation into a balance of payment crisis and the risk of default.
Market speculation also points to the strengthening of illegal hawala-hundi and grey markets. A portion of exporters and individuals are reportedly divesting foreign currency holdings in these unofficial markets, exacerbating the imbalance between reduced supplies of foreign currencies and increasing demand in the interbank and open markets.