KARACHI: The rupee fell on Tuesday, wiping out gains from the previous four sessions, as demand for the dollar increased ahead of the Eidul Azha holidays and concerns of an IMF loan program delay grew.
Stakeholders fear Punjab’s power subsidies to poor consumers could jeopardize Islamabad’s bailout progress.
The rupee closed at 206.94/dollar versus 204.56 on Monday. The rupee fell 1.15 percent or 2.38 rupees.
In the curb market, the rupee fell two rupees to 205 per dollar.
A currency dealer said the rupee lost ground due to importers’ dollar demand during the Eid holidays.
Friday through Tuesday is Eidul Azha.
According to reports, Punjab CM Hamza Shehbaz Sharif will give 9 million poor families 100 free electricity units per month. This politically-motivated statement violates IMF loan conditions ahead of Punjab CM’s reelection on July 22. This raised doubts about the Extended Fund Facility’s seventh and eighth reviews.
Tahir Abbas, head of research at Arif Habib Limited, said IMF program uncertainty and Punjab government power subsidy announcements are pressuring the currency market.
The government is trying to meet the lender’s strict terms to reclaim the $6 billion loan facility, but reports say the IMF program is stuck due to anti-corruption regulations.
Finance Minister Miftah Ismail said, “the IMF program is on track.” His explanation didn’t calm markets.
On June 28, the IMF gave Pakistan economic and financial targets that, if approved, could lead to a staff-level agreement.
Prior actions required by the Memorandum of Economic and Fiscal Policies (MEFP) include passing the federal budget agreed upon with the IMF and presented to the National Assembly on June 24 and presenting a memorandum of understanding signed by the provincial governments that binds them to contribute a combined Rs750 billion cash surplus to the federal government.
Falling forex reserves and a widening current account deficit pressured the rupee. The dollar fell to 209.96 on June 20.
Saad Hashemy, executive director at BMA Capital Management, said the rupee should settle around these levels given the REER, which was last reported well under 100.