Pakistani Rupee drops against dollar as panic buying goes up

A Pakistani dealer counts US dollars at a currency exchange shop in Karachi on October 9, 2018. (AFP)

• Foreign investors have withdrawn $182 million from Pakistan capital market, central bank data shows
• Global volatility has triggered outflows of foreign funds from risky investment avenues to risk free markets

KARACHI: Pakistani currency on Tuesday extended declines following the withdrawal of hot money from country’s capital market and global fears triggered by coronavirus pandemic, analysts said.
Pakistani Rupee has lost its value by 1.4 percent since Monday in interbank market to Rs.158.25 against the US dollar by Tuesday afternoon trade as compared to Rs.155.50 of Monday opening. The currency has lost value by more than 2 percent since the March 2, 2020 currency dealers say.
Capital market analysts link the rupee depreciation with volatile global and local equity markets and the withdrawal of hot money from government papers which has registered $182.55 million outflows in first six days of March 2020, according to State Bank of Pakistan.
“The global volatility that has triggered outflows of foreign funds from risky investment avenues to risk free markets like USA and Japan is the possible reason for Pak rupee depreciation,” Samiullah Tariq, Director research at Arif Habib, told Arab News adding that “The funds are moving out from Pakistan, India and other regional markets for save havens.”
The Special Convertible Rupee Accounts (SCRA) maintained by Pakistan’s central bank shows that the south Asian country’s capital market attracted $4.105 billion during July 2019 to March 06, 2020. The majority or 83 percent of the foreign fund inflows were attracted in short-term treasury bills which offer as much as 13.38 percent returns.
Currency dealers say they witnessed panic buying of greenback following Monday’s equity market crash that dropped 2300 points and triggered panic selling.
“The foreign investors sold rupee in the interbank market as they wanted to exchange with dollars. The panic buying and selling upset the exchange rates in the currency market,” Malik Bostan, President, Forex Association of Pakistan, told Arab News.
“After Coronavirus outbreak the investors are offloading their positions from the equity market and they want to convert into dollars that is putting pressure on the Pak rupee,” he added.
However, dealers say the buying activity in the open market is confined to only 2 percent that comes from those traveling abroad while 98 percent exchange goes to banks.
“Our daily buying and selling stands at $100-150 million while we are providing around $300 million to banks,” Bostan noted.