KARACHI: The rupee once again fell by 5.7 per cent against the US dollar on Monday making the cumulative depreciation of the exchange rate to 18.7 per cent during the last seven months. “This movement in the exchange rates reflects the demand-supply gap of the foreign exchange in the interbank market,” the State Bank said in a short statement released after the close of trade.

The statement once again pointed to the growth rate of the economy, adding that “this high growth has been accompanied with a notable deterioration in the country’s balance of payments. Despite a double-digit growth in exports (year-on-year 13.2pc in July-May FY18) and a moderate increase in remittances, strong demand for imports (year-on-year growth of 16.4pc in July-May FY18) have pushed the country’s current account deficit to the levels not sustainable beyond the short run.”

The statement pointed towards rising levels of aggregate demand in the economy, echoing a theme emphasised by the SBP in its monetary policy statement released on Saturday, as well as its third quarterly report released earlier. “SBP is of the view that this adjustment in the exchange rate along with the increased policy rate and other administrative measures, would help contain domestic demand in general, and reduce the imbalances in the country’s external accounts in particular.”

Currency dealers in the inter-bank market said they traded the dollar as high as Rs128.50 before it closed at Rs128 while the tom rate (tomorrow rate) was Rs128.25.

Before this devaluation the dollar was traded at Rs121.60-65 while the open market was trading the dollar at Rs124.50.

Last Saturday the Governor State Bank Tariq Bajwa was asked about the likelihood of further depreciations, and would only say that rupee dollar parity and interest rates are the two tools with which the central bank deals with foreign exchange related pressures, and “we are using both of them.”

The same day Finance Minister Dr Shamshad Akhtar hinted that the preparation is underway for the next government to approach IMF for another bailout package. The open market traded dollar as high as Rs132 but the exchange companies of A category said the rate was Rs129.

“But I believe that open market rate would be adjusted in few days that could be higher by Rs4 per dollar compared to banking rate,” said Zafar Paracha, Secretary General of Exchange Companies Association of Pakistan.

The dollar was short in the open market and most of the exchange companies refused to sell the currency. Dealers said a week is required to gain confidence of the market with the new dollar price as they were not aware of the next devaluation plan.

Published in Dawn, July 17th , 2018