Marred by economic uncertainty after Moody’s downgraded Pakistan in its latest ratings, the rupee plumetted against the US dollar after the currency registered a depreciation of 1.73% on Wednesday.
As per the State Bank of Pakistan (SBP), the rupee settled at 266.11 against the greenback, a decline of Rs4.61 in the inter-bank market.
A day earlier, the rupee had ended its four-session gaining spree against the US dollar on Tuesday, settling at 261.5 after a depreciation of 0.60% in the inter-bank market.
Market experts attributed the depreciation to Moody’s recent downgrade of Pakistan’s rating.
The rating agency on Tuesday downgraded the government of Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa3 from Caa1. It also downgraded the rating for the senior unsecured MTN programme to (P)Caa3 from (P)Caa1. On the other hand, Moody’s changed the outlook to stable from negative.
Moody’s said the decision to downgrade the ratings is driven by its assessment that Pakistan’s increasingly fragile liquidity and external position significantly raises default risks to a level consistent with a Caa3 rating.
“Moody’s outlook downgrade has dented market confidence,” a market analyst told Business Recorder.
Moreover, ongoing economic and political volatility was also affecting market sentiments.
“There are concerns in the market that after the Supreme Court’s decision (regarding elections in Punjab and KP) the government will switch to election-mode which may delay the much-needed International Monetary Fund (IMF) programme,” said the analyst.
In another key development, the Ministry of Finance said it expects inflation to remain high in the coming months at around 28% to 30% due to an uncertain political and economic environment, currency depreciation, recent rise in energy prices, and increase in administered prices.
As per the Ministry of Finance’s monthly economic update and outlook for the month of February released on Tuesday, although the SBP has been enacting a contractionary monetary policy, inflationary expectation will take some time to settle.
This comes as data released by the Pakistan Bureau of Statistics on Wednesday showed Consumer Price Index (CPI)-based inflation clocked in at 31.5% on a year-on-year basis in February 2023 compared to an increase of 27.6% in the previous month and 12.2% in February 2022.
On a month-on-month basis, it increased to 4.3%.
Globally, the dollar began the month on a strong footing as a higher-for-longer US rates scenario took centre stage, while the Aussie slid after a raft of economic data pointed to a slowing economy and signs that inflation might be past its peak.
Against a basket of currencies, the US dollar index was 0.09% higher at 105.07, having risen nearly 3% in February, its first monthly gain since last September.
Oil prices, a key indicator of currency parity, extended gains for a second session on Wednesday after a strong jump in manufacturing in China, the world’s top crude importer, boosted the outlook for global fuel demand.
Inter-bank market rates for dollar on Wednesday
BID Rs 266.10
OFFER Rs 268.10
Open-market movement
In the open market, the PKR lost 7 rupees for buying and selling against USD, closing at 271.00 and 274.00, respectively.
Against Euro, the PKR lost 9 rupees for buying and selling, closing at 286.00 and 289.00 respectively.
Against UAE Dirham, the PKR lost 1.70 rupee for buying and 1.80 rupee for selling, closing at 75.70 and 76.50, respectively.
Against Saudi Riyal, the PKR lost 2 rupees for buying and selling, closing at 72.00 and 72.70, respectively.
Open-market rates for dollar on Wednesday
BID Rs 271
OFFER Rs 274