The Pakistani rupee fell to a record low on Wednesday on strong demand for the dollar for oil import payments, and dealers said they expected the currency to weaken further in the days ahead. The rupee ended at 86.56/58 to the dollar, weaker than Tuesday’s close of 86.40/42. “The rupee was traded as high as 86.58 to the dollar,” said a dealer at a foreign bank. The rupee last hit a record low in May, at 86.50.
Dealers said dollar payments are typically higher in July and August because of stronger oil demand and debt payments. As well as oil payments, the International Monetary Fund’s stalled aid programme to Pakistan is also weighing on the rupee. The IMF has criticised the government for its patchy implementation of fiscal reforms and has held back the sixth tranche of an $11 billion loan programme since August last year. IMF and Pakistan officials were due to meet this month but the meeting has been delayed and no new date has been announced.
This month, the U.S. confirmed it would hold back $800 million in aid to Pakistan, or nearly a third of its total security aid, in part because Pakistan had expelled American military trainers and imposed other limits on visas for U.S. personnel. Foreign direct investment has also been falling, dropping 26.8 percent in the 2010/11 fiscal year to $1.573 billion from $2.150 billion in the same period last year.
But Pakistan’s current account surplus gives the country some sense of financial security though analysts said it might not last for much longer.
For the 2010/11 fiscal year the government posted a provisional current account surplus of $542 million, the first full-year surplus after seven years of deficits.
However, dealers said that the rupee was being supported by increased remittances from Pakistanis working abroad and that was shielding the currency from a sharp fall. According to official data, remittances rose to a record $11.2 billion in the 2010/11 fiscal year, an increase of 25.77 percent from the previous year.
In the stock market, the Karachi Stock Exchange’s benchmark 100-share index ended down 0.80 percent, or 98.53 points, at 12,265.53 on turnover of 61.22 million shares. Foreign investors sold Pakistan Oilfields (POL) shares and that prompted local investors to be cautious as well, dealers said. POL ended 4.94 percent lower at 363.30 rupees. “Aggressive offloading in POL by leading institutions triggered a selloff across the board and continuous selling by foreigners in the last few sessions also depressed market sentiment,” said Samar Iqbal, a dealer at Topline Securities Ltd. In the money market, overnight rates closed at a day’s high of 13.90 percent, compared with the previous day’s close of 12 percent to 12.50 percent, and dealers said they were awaiting the result of a treasury bill auction in which they expected the cut-off yields to be 5 to 10 basis points higher. The result was due to be announced later in the day.
