THE rupee slide during the week ending April 6 has more to do with the inability of the government to instil confidence in the market rather than a sudden increase in demand for dollars.

Issues in the country’s external sector had been accounted for in interbank market dealings. Even the open currency markets were behaving somewhat smoothly before the beginning of this month.

The rupee came under pressure during the first week of April because of growing political confrontation. A remark by Finance Minister Asad Umar, that the decision to go to the IMF was taken to avoid “bankruptcy,” created panic in forex markets.

Fiery speeches by former president Asif Ali Zardari and PPP Chairman Bilawal Bhutto added fuel to the fire. Both had talked about dislodging the PTI government if an attempt was made to revoke the 18th Amendment.

Repeated warnings by Prime Minister Imran Khan of launching a crackdown against all “who have plundered” the nation also added to the prevailing political heat.

Both the government and the State Bank of Pakistan tried to quell speculations of imminent rupee depreciation but were unable to calm agitated nerves.

One of the reasons for an acute shortage of dollars in the market is that sizable dollar selling by speculators and investors, belonging to powerful groups and managed by unscrupulous forex dealers through parallel account books, has stopped.

In the interbank market the rupee’s closing rate vis-à-vis the dollar went as high as 141.39 during the week. The rupee closed the week at 140.30 per dollar.

In the open market the exchange rates showed much greater volatility — the dollar rising at one point beyond Rs145, from Rs141 at the end of March.

Published in Dawn, The Business and Finance Weekly, April 8th, 2019