International markets currency turmoil and higher oil prices, mainly necessitated by the Russia-Ukraine conflict, are putting increasing pressure on the Pakistani rupee, which plummeted to an all-time low at Rs178.61 against the US dollar in the inter-bank market on Tuesday.
Analysts say that Pakistan’s current deficit — currently at 11.6 billion USD in 7MFY22 — could further go up and the rupee faces further depreciation due to the geopolitical uncertainty and rising global oil prices.
Though the State Bank of Pakistan has stated to have enough financing to fund the deficit, analysts say, snowballing import bills in wake of all-time-high oil prices will put pressure on foreign reserves.
Market analyst Arsalan Siddiqui said that the uncertainty related to the current account deficit, geopolitical tension and volatility in international financial markets will exert pressure on the rupee in the coming weeks.
He said that the greenback was climbing against most of the currencies including the Pakistani rupee as the sharp rise in global oil prices, amidst the Russia-Ukraine conflict, is mounting pressure on the rupee.
He said that further deviation of the rupee cannot be ruled out if the global geopolitical situation persists in the coming weeks.
Siddiqui said that rising oil prices are draining foreign reserves in emerging markets like Pakistan that are mainly dependent on imported petroleum.
He said that though the central bank has enough financing, for time being, to withstand the global shock, the market remains bearish on the Pakistani rupee as the currency is likely to remain under depreciatory pressures with weaker external finances.
The analyst said that a host of market forces including a possible ceasefire is agreed between Russia and Ukraine and plummeting oil prices will determine the stability of the Pakistani currency.
Analysts further said that textile and cement exports of Pakistan were declining because of global factors including the hike in global coal prices.
Media outlets quoted Arif Habib Limited as saying that the rupee shed 0.27 per cent day-on-day while it was down 11.8 per cent since the beginning of the current fiscal year in July 2021.
Market observers say that dwindling foreign currency reserves paired with a widening current account deficit may prompt the central bank to devalue the Pakistani currency.
