‘Erratic’ rupee fills IMF with concern
KARACHI: The frequent rupee depreciations against the US dollar amid a supply-demand mismatch is a serious concern for the International Monetary Fund (IMF), sources in the financial sector told Dawn on Thursday.
The sources said that the continued devaluation of PKR has changed the view about the exchange rate stability which emerged in the wake of a crackdown launched in early September against the illegal currency business and dollar smuggling.
“The IMF has concerns about the frequent devaluation of PKR and found the current exchange rate unreal,” said a high-placed source in the financial sector, adding that the second tranche of $710 million under the $3bn Standby Arrangement (SBA) would be released with some more strings.
The nine-month SBA will end in March 2024.
However, a senior banker and currency expert said the inflows of export proceeds could increase this month. “In the next two weeks fresh export proceeds could land into the market,” said Atif Ahmed, a senior banker and currency dealer in the banking market.
He said the fresh arrival of export proceeds would depend upon the market situation which is so far not conducive for sellers.
According to the State Bank of Pakistan, the dollar closing price was Rs286.90 on Wednesday. No bank was allowed to cross this figure but banks were selling dollars at higher prices without bringing in notice of the central bank.
“Some banks who have dollars sell their holdings to their good clients while small importers are wandering for dollars in the market, and left with no option but to buy dollars at much higher prices. He said these importers were buying dollars at Rs290.
“This is the mismatch reflecting the future exchange rate trend. I believe the devaluation of PKR will continue unless a balance is achieved between supply and demand for dollars,” said a banker.
Bankers said the tight supply is fuelling the dollar’s appreciation against the local currency. They hoped an improvement in remittances and export proceeds could reverse the current exchange rate trend.
However, bankers said the reports are not encouraging about remittances and export proceeds. The remittances were 20pc down in the first quarter of the current fiscal year compared to the last year.
The export is not growing which means the proceeds would decline during the current fiscal year. Bankers said the exporters cannot survive with 29pc inflation and 22pc interest rate.
Manufacturers and traders have been demanding to bring down the interest rate as the cost of doing business has reached the highest level in the region.
Published in Dawn, November 10th, 2023