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Some currency traders blamed neighboring Afghanistan for the dollar outflow as the reason for the decline.
Due to increased demand for the U.S. dollar in the inter-bank market and the open market, the exchange rate of the Pakistani rupee against the U.S. dollar hit a record low on Monday.
According to foreign exchange dealers, the currency’s exchange rate against the U.S. dollar fell again by 52 paisa, or 0.31%, to close at 169.6. Since it recently peaked on May 14, 2021, it has depreciated by nearly 10.21%.
Some currency dealers also blamed the outflow of U.S. dollars to neighboring Afghanistan, where the banking system has been in chaos since the withdrawal of the United States and allied forces and the Taliban took over on August 15.
Malik Bostam, chairman of the Pakistan Foreign Exchange Association, told Khaleej Times: “The flow of American currency to Afghanistan has put pressure on the Pakistani rupee, which is already under pressure due to the country’s current account deficit and rising inflation.”
Pakistan’s current account deficit widened to US$1.5 billion in August 2021, mainly due to a surge in import payments.
“The current account deficit increased from US$800 million last month to US$1.5 billion in August 2021, while SBP’s foreign exchange reserves rose to a record high of US$20 billion,” the central bank said on its official Twitter.
The cumulative current account deficit for the first two months (July and August) of the 2021-22 fiscal year was US$2.29 billion, compared with a surplus of US$838 million in the same period last year.
Last week, the U.S. dollar against the rupee hit an early high of 168.94, shattering investor confidence in the unit and the stability of the exchange rate. The National Bank of Pakistan earlier stated that the U.S. dollar may appreciate in the 2021-22 fiscal year due to an expected increase in the current account deficit.
Samiullah Tariq, head of research and development at Pakistan Kuwait Investment Corporation (Private) Ltd. attributed the fall of the Pakistani rupee to the country’s high current account deficit in the past four months, and said that demand for U.S. dollars is higher than market supply.
“The rupee against the U.S. dollar and other major currencies, such as the British pound, the single European currency euro and the UAE Dirham, may continue to be under pressure,” he said.
Bostan told the private news channel Hum News: “About 25% of the U.S. dollar (the total U.S. dollar in Pakistan’s open market) will flow from Peshawar to Afghanistan.”
“Before the Taliban took over Kabul, US aircraft brought US$500 million to Afghanistan every 15 days. In the past, about US$5-6 million flowed into the Pakistani market every day, and now it ends with the US withdrawal,” he said. Said.
muzaffarrizvi@khaleejtimes.com
Muzaffar Rizvi
The business editor/news editor of Khaleej Times is a well-connected reporter and economic and financial commentator. Since 1997, he has been engaged in mainstream journalism, covering the UAE’s economy and key sectors. He has a graduate degree in economics and has won many awards for his true and insightful reports on global and regional business and economic trends.
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