Dollar upward march continues, interbank trading at record Rs196.10

The US dollar continued its flight against the rupee for the sixth consecutive session on Tuesday to breach the Rs196 mark — an all-time high — in interbank trade, mainly due to the country's depleting foreign exchange reserves and high imports.

According to the Forex Association of Pakistan (FAP), the greenback gained Rs1.50 from the previous day's close of Rs194.60 to climb to Rs196.10 around 11:20am.

This spell of the dollar's persistent rise against the rupee began on Tuesday last week, when the international currency hit a record high of Rs188.66. It then soared to Rs190.90 on Wednesday, rose past Rs192 on Thursday, reached Rs193.10 on Friday and climbed over Rs194 yesterday (Monday).

While the FAP data showed that the greenback closed Rs194.60 on Monday, the State Bank of Pakistan recorded the closing rate at Rs194.18. A Dawn report, while quoting the SBP's closing rate, said that the international currency was traded at higher rates before settling at Rs194.18.

The Dawn report highlighted that while the dollar kept the rupee in its strong clutch during the entire fiscal year FY22, the last two months proved the worst.

Moreover, a Dawn.com report said on Monday that the when the PML-N-led coalition government took over on April 11, the dollar was valued at Rs182.3, and since then, the rupee had lost Rs11.4 or 6.2 per cent of its value.

According to currency dealers, the dollar demand never comes down, which did not allow the local currency to stay at any point.

They say the higher demand for dollars is the key reason for the bullish trend in the currency market. Political foot-dragging by the incumbent government on the reversal of fuel and electricity subsidies — a prerequisite for the resumption of the loan programme by the International Monetary Fund (IMF) — has further eroded the confidence of stakeholders.

Meanwhile, the decline in the rupee is also fuelled by an uncontrolled increase in imports coupled with a relatively slower pace of growth in exports.

The rising oil prices have already doubled the oil import bills, but the overall imports are also at a record high. In April, imports increased by 72pc, leaving no room for the government to improve its external balance.

Moreover, foreign exchange reserves of the central bank have touched $10.3 billion, lowest since June 2020.

Currency dealers said the unexpectedly high imports bill and low foreign investment were not in support of the exchange rate while over $13bn current account deficit was already there as a challenge for the government.

Exchange Companies Association of Pakistan further identified the uncertainty surrounding the release of a $1 billion tranche as another factor contributing to the rupee's decline.

He explained the release of funds by the IMF as a "benchmark", saying that if the Fund was to approve the payment, other international institutions would gain confidence and follow suit.

Dealers in the inter-bank told Dawn on Monday that there was no chance for improvement in the exchange rate.

“The dollar will appreciate every day until and unless the government takes some concrete measures to stop this free fall,” said currency dealer Atif Ahmed.

'Strict measures' needed to prevent dollar hitting Rs200-mark

In the midst of dwindling foreign exchange reserves and the massive devaluation of the local currency, Prime Minister Shehbaz Sharif has directed the policymakers to devise a comprehensive strategy in consultation with the stakeholders to halt the rupee’s free fall and improve reserves.

He also held a Zoom meeting with Exchange Companies Association of Pakistan (ECAP) chairperson Malik Bostan on Monday and expressed concern over the current situation.

Speaking to Dawn.com today, Bostan said the "effects of yesterday's meeting will soon be seen on the market".

He also emphasised that in order to curtail the dollar's flight and prevent it from reaching the Rs200 mark, "the government will have to take strict measures". In this regard, he suggested restrictions on imports on bounding exporters to bring in revenue from exports.

Bostan said if the government managed to control the dollar's rate in the interbank market, "we will expeditiously bring the dollar's value down in the open market".

Prior to PM Shehbaz's meeting with Bostan, Finance Minister Miftah Ismail had discussed in detail the exchange rate situation with a ECAP team.

During the meeting, it was suggested that entire markets across the country should be closed down before the sunset, which would save a substantial amount of energy, reduce the import oil bill and the supply to the general public could be restored.

Moreover, the representatives of exchange companies called for a ban on all imports except essential items.

“If someone feels imports of more items are necessary, he should arrange the dollars himself,” Zafar Paracha, general secretary of the ECAP, had suggested.

He reiterated while speaking to Dawn.com today, as he went on to call for imposing an "economic emergency" and urge political parties to sit together to devise a plan for stabilising the economy.

He also called on the government to put an end to the unnecessary expenditure on parliamentarians' "perks and luxuries", warning that if these measures were not taken, situation in Pakistan could turn like that in Sri Lanka, which is currently facing a severe economic crisis.

According to a Dawn report, the PM would hold another meeting with Bostan and the SBP governor on the exchange rate today.

This will be the third meeting held by the government on the issue in four days and reflect the growing frustration in the power corridors of Islamabad, the report said.