The rupee gives up its gains

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KARACHI: The rupee ended slightly weaker on Friday, erasing gains made since the government raised fuel prices to resume the IMF lending program last week, as a sharp drop in foreign currency reserves fueled concerns over a balance-of-payments crisis, dealers said.

The local unit closed for the day at 197.92 to the dollar in the interbank market, down 0.17% on a daily basis, according to exchange rates provided by the State Bank of Pakistan (SBP). The rupee had finished at 197.92 on Thursday. Dealers said the rupee was trading at 198.50 in the curbside market, down from 198 in the previous session.

“The Rupee opened lower in a volatile trading session today as investors worried about the deterioration in the balance of payments position after the country’s official reserves fell below the level of $10 billion to their lowest level since December 2019,” said a trader. The country’s foreign exchange reserves fell by $378 million to $15.771 billion in the week ending May 27.

SBP reserves fell to $9.723 billion from $10.088 billion, which could only provide six-week import cover.

Analysts said the country is facing a balance of payments crisis where it has a shortage of foreign currency reserves. Although the government has restricted certain import products, this is a short-term remedy and should be canceled as soon as an agreement with the IMF to revive the bailout is reached.

Some analysts believe the economy will slow in the wake of soaring commodity prices, inflation and demand for imported goods.

Pakistan’s trade deficit increased by 58% to $43.33 billion in July-May for FY2022. The deficit remained at 12% YoY and 7% MoM in May 4, 04 billion dollars.

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