The value of the US dollar touched Rs153.50 in the open market on Tuesday with the rupee falling Rs1.5 compared to yesterday's exchange rate — continuing a slide that saw it lose more than 5% last week in the wake of a $6 billion loan accord with the International Monetary Fund.
The IMF accord, which must still be approved, foresees a “market-determined” rate for the rupee. At present, the currency — which many analysts consider overvalued — is managed by the central bank in a de facto controlled float.
The rupee fell to Rs152.25 against the dollar in the interbank market, down Rs0.75 as compared to yesterday, DawnNewsTV reported.
The dollar closed at an 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 State Bank of Pakistan, which lifted interest rates by 150 basis points on Monday to 12.25%, said it was watching the foreign exchange market closely and would act in the case of “unwarranted” volatility.
It said the recent slide “reflects the continuing resolution of accumulated imbalances of the past and some role of supply and demand factors”.
The bank had cited rising inflation as well as expectations of future inflation driven by a weak rupee, widening fiscal deficit and potential adjustments to the utility tariffs as the key drivers behind the rate hike.
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.