Rupee volatility is expected to continue
KARACHI: Uncertainty in the money market is expected to continue next week, as official trade figures for the first two months of the current fiscal year revealed a significant widening in the trade balance.
The trade balance for the first two months (July-August) of the current financial year showed a widening of the deficit of 120%. The trade deficit stood at $ 7.49 billion in the first two months of the current fiscal year, compared to $ 3.4 billion in the corresponding months of the previous fiscal year.
The country needs dollars to ease the pressure of external payments due to the influx of the greenback in the form of export earnings. The country’s exports grew 27.59 percent to $ 4.57 billion in the first two months of the current fiscal year, compared with $ 3.58 billion in the corresponding period of the fiscal year. previous.
Although exports showed significant growth to support the rupee, a sharp increase in the import bill offset the impact of exports on the local unit. The import bill increased 72.6 percent to $ 12.06 billion in July-August of the current fiscal year, from $ 6.99 billion in the same period of the fiscal year previous.
At the current rate, the country’s exports are increasing with a monthly average of $ 2.28 billion and the import bill is increasing with a monthly average of $ 6 billion. This shows that the trade deficit at this rate would climb to around $ 44.6 billion, with an import bill of $ 72 billion and exports of $ 27.36 billion.
The widening trade deficit and slower pace of remittances would put pressure on the balance of payments. The current account deficit for July was $ 773 million, as reported by the State Bank of Pakistan. Meanwhile, remittances maintained the pace of over $ 2 billion / month in July 2021.
The SBP said that with inflows of $ 2.71 billion in July 2021, workers’ remittances continued their strong trend, remaining above $ 2 billion for the 14th consecutive month. This was the second highest level of remittances on record in July. However, at the same time, it’s important to point out that remittances were down 2.1% from the same month last year, the SBP said.
Another major concern regarding the stability of the rupee is the political uncertainty and the war situation in Afghanistan. US forces left Afghanistan and the Taliban took control of the country. The United States froze Afghanistan’s dollar accounts, halting the supply of foreign currency with the exit of the US military. This has created a severe shortage of greenback in the neighboring country. It is believed that the foreign currency would be smuggled to the neighboring country through neighboring towns in Pakistan.
During the outgoing week, the rupee remained volatile. It has experienced a continuous decline against the dollar for four consecutive days of the week. However, he made a gain on the last trading day.
The exchange rate started the week at Rs 165.62 against the dollar on August 30, 2021 and ended the week at Rs 166.91 against the dollar on September 3, 2021.