Battling high import payments, depleting foreign exchange reserves, and political turbulence, the Pakistani rupee saw its worst month in over 50 years after depreciating 14.5% against the US dollar.

The rupee had started July off at 204.85 in the inter-bank market. However, despite fewer trading sessions due to Eid holidays, the currency received a hammering at the hands of the dollar to eventually close at 239.37 on July 29.

Rupee ends 10-session depreciation run, closes at 239.37

This was the rupee’s second-worst monthly performance against the US dollar since May 1972, when the local currency recorded a plunge of 57%. Back then, the then government, while terming the decision inevitable, announced to devalue the Pakistan Rupee, reducing its parity value from Rs4.77 to Rs11 to a US dollar.

Fast-forward 50 years, and the rupee had already reached the level of over 200 by July 2022.

Its latest drop can now be attributed to multiple factors including escalating domestic political tension, low foreign exchange reserves and, as experts have called it, speculative behaviour on part of stakeholders.

Interestingly, the rupee saw a depreciation run of 10 sessions – out of a total 17 – all of which came right after the International Monetary Fund (IMF) announced its staff-level agreement with Pakistan authorities on July 14.

It was also reported less than a week later that the IMF is looking to assess Saudi Arabia’s commitment to financing Pakistan before the multilateral lender disburses fresh funds to the country.

What now for the currency

Economic experts said the rupee would see a respite in the coming weeks, at least in the short term.

“Although we believe that the Rupee still has inherent depreciation bias in the long-term, in the short term, we expect some stability to be restored,” said Arif Habib Limited (AHL) in a report titled 'PKR vs. USD- Any relief on the cards?'.

“We attribute this short-term stability conditional upon: inflows from bilateral and multilateral creditors, IMF inflows, and strengthening of some macro-economic variables along with State Bank of Pakistan’s (SBP) attempts to curb market speculation,” it said.

PKR slide: govt feels so helpless because there’s IMF condition

Saad Khan, Head of Research at IGI Securities, told Business Recorder that success with the IMF could lead to a depreciation break.

“If everything goes as per the plan, pertaining to the IMF, it could push the rupee down to 225-230. However, in the long-term, the rupee would remain lower,” he said.

Elaborating, Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited, said the rupee's fall is due to a mismatch between inflows and outflows.

IMF announces staff-level agreement with Pakistan

“The market does not have dollars, and there are Letters of Credit (LCs) that need to be retired. However, the disbursement of funds from the IMF would see a return of normalisation and the recovery would be fast,” said Rauf.

The local currency could appreciate around Rs20-25 as the situation normalises, with import payments expected to decline as well.

Meanwhile, Wajid Rizvi, Head of Research at Tresmark Research, said by mid-August the rupee would begin improvement.

“Commitments from China and Saudi Arabia would be realised after the IMF nod,” he said.

Also read how the rupee fared in 2021: