KARACHI: Rupee slipped 0.71 percent (Rs1.25) against the US dollar for the third straight week due to surging oil and commodity prices globally amid Russia-Ukraine war.
The rupee slipped from 175.86 to 177.11 against the American currency in the interbank market last week after going 0.13 percent and 0.66 percent down in the preceding weeks. Overall, the rupee has depreciated by Rs19.68 during the ongoing fiscal year 2021-22, while the local unit has depreciated by 60 paisas during the current year 2022. Within the open market, the rupee weakened to 177.50/178.50 per dollar against 176.50/177.50 per dollar a week earlier.
On the other hand, the US Dollar Index, which tracks the greenback versus a bundle of its main competitors, came under pressure and slipped back below the 97.00 yardstick on Friday. The appetite for safer assets continued to bolster the dollar and kept the index on the positive footing on the back of the deterioration of the geopolitical scenario.
The constructive view in the buck remained underpinned by the current elevated inflation narrative and the probability of a more aggressive start of the Federal Reserve’s normalisation of its monetary conditions. The index gave away ground following a tepid change in the markets’ mood after news reported a probable meeting between Russian and Ukrainian officials despite the relentless advance of Russian troops into the country.
The rupee remained volatile and started last week on the front foot, appreciating by 11 paisas (+0.06 percent) on Monday. However, it came under pressure on Tuesday and depreciated by 48 paisas (-0.27 percent). The rupee remained firm on Wednesday and eroded a part of previous day’s losses by gaining 7 paisas (+0.06 percent).
However, the next two days remained tough for the local unit, as Russia intensified attacks on the Ukrainian territory. The rupee depreciated by 23 paisas (-0.13 percent) on Thursday and 72 paisas (-0.41 percent) on Friday, which turned the overall week negative for the rupee.
The rupee is bearing the brunt of increasing trade deficit, surging import bill due to rise in oil prices, shrinking reserves, Russia-Ukraine conflict, and speculative elements. The oil import bill recorded a sharp increase in the first seven months (July-January) of 2021-22 from a year ago owing to rising prices on the international market and massive depreciation of the rupee.
The oil import bill surged 107.35 percent to $11.7 billion in the first seven months of the current fiscal year. Experts believe that as war prolongs the international oil prices would move upward and subsequently affect the rupee value.
Moreover, a sharp rise in the current account deficit also put additional pressure on the local currency. The country’s current account widened to the highest-ever monthly deficit of $2.6 billion in January 2022, compared to $1.9 billion in December 2021, taking the current account deficit to $11.6 billion in the first seven months of the current fiscal year.
Again, the depleting foreign exchange reserves also impacted the rupee stability. The liquid foreign exchange reserves of Pakistan declined $264 million to $23.226 billion by the week ended February 18 against $23.49 billion by the week ended February 11, the State Bank of Pakistan said.
