The Pakistani rupee further lost its value by Rs 1.84 against the US dollar on Thursday and reached Rs 164 in the interbank market.
In the open market, the greenback was being traded at Rs 164.25 after an increase of Rs 1.25. Within just two days, surprisingly, the devaluation of the local currency has been recorded to be more than Rs 7, a private television channel reported.
The massive fresh devaluation of rupee has been observed despite assurance of new State Bank of Pakistan (SBP) Governor Reza Baqir that there would be no free-float in the market as it was not suitable for the country’s economy. He had said that the exchange rate would be market-based.
However, on Wednesday, value of the US dollar against the rupee touched another historical high as the greenback hit Rs 162.16 in the interbank market after the rupee devalued by Rs 5.18.
The significant hike in the value of the US dollar has raised fears that prices of essential commodities, particularly imported products, would follow the similar trend.
Since the start of this month, the rupee has been devalued by Rs 16.42 which in turn has raised Pakistan’s external debt by more than Rs 1.4 trillion.
According to experts, the government must ensure implementations on economic policies after the deal with the International Monetary Fund (IMF).
It is anticipated that dollar’s rate would fluctuate for some time, and the value of the Pakistani rupee would stabilise after proper implementation of the economic policies.
Economists, amid the widespread speculations about the currency’s free-float in the market, fear that the rate of the greenback may rise further.
Currency dealers are anticipating that the financial year end, coupled with rumors about a higher future value of the dollar, are responsible for the current situation.
Last week, Reza Baqir held a press conference and took businessmen and investors into confidence, stating that Pakistan had accepted all conditions of the International Monetary Fund, and expressed hope that the global moneylender would approve the bailout to Pakistan on July 3.
Furthermore, following the approval, other international financial institutions are also likely to extend financial assistance to Pakistan, which would result in high inflows of the greenback.
Volatility in the currency market had subsided in the days prior to Eidul Fitr amid high inflows during the festive season.
According to economists, Pakistan’s monthly average imports are around $4 billion, while exports are only $1.7 billion.
The remittances help recover the fiscal deficit to some extent, but the demand of the greenback remains high due to payments of the state’s loan.
They were of the view that due to such a significant gap between exports and imports, the trade deficit had been increasing, and in the coming days – after new proposed taxes are imposed – the production costs of export sector would increase [due to rupee devaluation] and consequently the situation would worsen for the export sector of the country.
Since the open market or cash market rate usually remains higher than the interbank rate, the open market is likely to follow a similar trend.
According to Fitch Solutions, a US-based global research house, Pakistan’s Karachi Stock Exchange 100 Index has already fallen by more than 14% since July 2018, reaching the lowest levels since March 2016, suggesting that investor confidence in the economy had fallen.
The large-scale manufacturing (LSM) industries have also been contracting over the past few months, with the quantum index recording a 6.7% yearly decline in March. With a slowdown of manufacturing activity, a fall is expected in investment appetite related to LSM industries, such as investment in capital goods.
