Dollar hits Rs153.50 in open market
The US dollar continued its steep incline in Pakistan, reaching a new all-time high in the interbank and open market on Tuesday.
In the open market, the dollar rose by Rs3 and was being sold at Rs153.50. The dollar closed at all-time high in the open market as well as interbank, whereas the greenback reached Rs152.25 at the close of the interbank market, after touching a day’s high of Rs152.30.
The rupee has been falling against the dollar following an agreement with the International Monetary Fund on a $6billon loan with expected strict conditions including a “market determined” exchange rate.
The rupee’s official exchange rate is supported by the central bank under a de facto managed float system and many analysts consider the currency to be overvalued.
According to data from the State Bank, the central bank’s foreign exchange reserves as of May 3 stood at $8.984 billion, equivalent to less than three months of import payments.
“Basically, the sudden spike of the dollar against the rupee is due to the impact of the IMF deal plus a shortage of dollars in the market,” said Saad Hashemy, chief economist and director of research at Topline Securities in Karachi.
With inflation running at more than 8 per cent, a weaker currency is likely to add to pressure on household budgets, particularly on power and gas bills, where the government faces growing pressure to allow regulated prices to rise.
Since the beginning of this fiscal year, the rupee has lost more than 21pc of its value to the dollar.
According to Forex Association of Pakistan President Malik Bostan, “In the State Bank of Pakistan’s view, the recent movement in the exchange rate reflects the continuing resolution of accumulated imbalances of the past and some role of supply and demand factors.”
The decline in the rupee’s value during the past two weeks and the lagged impact of previous bouts of depreciation have pushed up the prices of almost all essential items, including flour, dates, meat, fruit etc during Ramazan.
The bank said the “inflationary pressures are likely to continue for some time”, but added that it “will continue to closely monitor the situation and stands ready to take measures, as needed, to address any unwarranted volatility in the foreign exchange market.”
The rupee began its downward spiral last week on the back of the signing of a bailout agreement with the International Monetary Fund (IMF). The IMF had, in its statement on the programme, referred to a “market determined exchange rate”, which the financial markets did not take very well.
Resultantly, speculation broke out in the forex markets, with small and large investors looking towards the greenback, and some currency dealers hoarding dollars, leading to a shortage in the market. Additional input by Reuters