Rupee slipped by 0.32 percent (-Rs0.59) against the US dollar for the ninth straight week due to political uncertainty in the country and surging oil and commodity prices globally.
The rupee slipped from 184.09 to Rs184.68 against the American currency in the interbank market last week. The rupee plummeted to all-time low of 189.51 against the US dollar in the inter-bank market on Thursday; however it recovered on Friday.
The rupee is likely to stay stable against the dollar this week after the central bank increased the interest rates and took measures to cut imports and reduce inflationary pressures. The analysts said that a new government is in the offing, which will end the political crisis, and the rupee may recover some of the losses of previous weeks.
There has been a concern that what would happen if the political conditions don’t normalise, but the currency market is unlikely to give a negative knee-jerk reaction to the fast-changing political developments,” said a foreign exchange dealer. “The central bank’s measures also gave confidence to investors and markets. We expect the rupee to be stable in the coming week,” he added.
While the pressure on the currency has been relieved for the time being, this war is far from won, according to a report. “There are some positives: remittances are expected to shoot up due to Ramzan, exports are following a robust trajectory, and outflows from SCRA [special convertible rupee account] have slowed down,” it said.
The report, citing analysts, said the central bank was targeting a real effective exchange rate of around 95 (it was 97.80, at the end of February) which would come to approximately 185/$ for today. “However, the new incoming government will need to get the IMF quickly back on track and garner support to boost reserves, and foreign investors will need to be wooed back.”
Interest rates may need another round of adjustment really soon and non-essential imports may require to be temporarily halted,” it added.
On Thursday, the central bank called for an emergency monetary policy meeting and sharply lifted the interest rates by 250 basis points to 12.25 percent. Although this was announced in the monetary policy statement on Thursday, trading in secondary markets and cut-offs from recently held auctions had already signalled a sharp lift off. “This showed SBP’s intent and resolve to combat the emerging situation proactively and was mostly cheered by the market,” the report said.
The rupee has set 18 all-time lowest levels in the interbank market against the greenback during the last 20 sessions. Overall, the local unit devalued by Rs27.25 during the ongoing fiscal year 2021-22 and Rs8.23 during the current year 2022.
