KARACHI: The escalation in tension on Pakistan-India border weighed on economies of the two neighbouring nuclear-armed nations as their currencies and stocks dipped, while gold surged on Wednesday.
In case of Pakistan, the rupee closed at a record low of 139.25 to the US dollar in the inter-bank market and gold hit an all-time high of Rs70,000 per tola (11.66 grams) as Pakistan shot down two Indian fighter jets and arrested a pilot in bordering areas in retaliation to violation of Pakistan’s airspace by India air forces.
A currency dealer said that escalation in tension convinced foreign investors to offload shares and depart from the Pakistan Stock Exchange (PSX). The situation created additional demand for dollar in the inter-bank market and resulted in a dip in value of the rupee.
A banker, speaking on condition of anonymity, added that the geo-political tension remained the leading reason behind the fresh fall in value of the rupee. Besides, uptrend in international oil prices for the past few days also pushed the rupee down against the dollar as Pakistan remained a net energy importer, which requires hefty dollars in times when its foreign currency reserves continue to deplete. The fall in the rupee and stocks prompted investors to relocate to the safe haven of gold. This resulted in enhancement of gold price to an all-time high, a jeweller and a commodity expert commented.
The State Bank of Pakistan (SBP) reported that the rupee dropped Rs0.37 to record low average closing of Rs139.25 in the inter-bank market on Wednesday. It has depreciated by a cumulative Rs0.70 in the first three days of the week in progress, according to the central bank. The banker noted the US Brent crude oil price has elevated by around $10 per barrel to $65 in the last two weeks.
The uptrends convinced oil importers in Pakistan to buy more dollars in the inter-bank market, which caused depreciation in the rupee value. “The rupee may dip to Rs140-142 against the US dollar if the oil price maintains the upward trend in the next one week to 10 days,” the banker said.
Pakistan Forex Association President Malik Bostan pointed out that geo-political tensions pulled the PSX benchmark KSE-100 Index below 39,000 points from around 42,000 points in the recent past. “The escalating tension convinced foreign investors at the PSX to leave,” he said. “The situation created additional demand for dollars.”
Foreign investors, who remained net sellers for over three years, have sold stocks worth net $941,294 in the past two days, according to the National Clearing Company of Pakistan Limited (NCCPL).
Bostan added that currency retail markets suspended their operations for a limited duration during the day following escalation in tension and Civil Aviation Authority of Pakistan’s announcement that it was closing airspace for commercial flights. He said currency dealers import dollars from Dubai against exporting other surplus foreign currencies like UAE dirham and Saudi riyal.
