After plunging to a record low last week, the PKR depreciated by another Rs7.03, closing at Rs269.63 per dollar in the interbank market on Monday, according to data shared by the State Bank of Pakistan (SBP).

This equates to a loss of 2.67 per cent from Friday’s close of Rs262.6.

Exchange Companies Association of Pakistan (Ecap) General Secretary Zafar Paracha attributed the rupee’s depreciation to a shortage of dollars. “The supply of dollars has not been restarted. We do not know where the banks will get the supply from but there is no arrangement,” he said.

He was referring to the SBP deputy governor’s assurance to exchange companies’ representatives in a meeting last week that commercial banks would be directed to supply dollars to the change companies.

“There is a lot of panic in the market. If dollars are received, it will cool down a bit. As long as the market doesn’t settle, people will not sell their remittances or export proceeds,” Paracha said.

The Ecap general secretary criticised the government for delaying the decision to remove an unofficial cap on the exchange rate, saying it had worsened the situation. “The policy should not be dictated by a finance minister’s mood,” he said.

Tresmark’s Head of Strategy Komal Mansoor said most analysts believed the rupee would weaken to Rs275 per dollar and then consolidate towards Rs270 after the International Monetary Fund (IMF) approved the disbursement of a $1.2 billion tranche.

“In spite of interest rate hike, devaluation round, fuel price hike, there are still differences between Pakistan and the IMF. But it seems like Pakistan’s position has changed from resisting to negotiating. If things fall into place, we may see IMF inflows as early as mid-February,” she said.

PKR’s course correction

The rupee had depreciated by Rs24.54 in the interbank market on Thursday after the government removed an unofficial price cap on the USD-PKR exchange rate. It was the largest single-day depreciation in both absolute and percentage terms since the new exchange rate system was introduced in 1999, according to Ismail Iqbal Securities.

It depreciated further by Rs7.17 the next day, with analysts terming the slide a “much-needed adjustment”. The removal of the cap resulted in the interbank and open markets aligning more closely, with the local currency being traded at Rs269 in the open market on Friday. Currency dealers now expect a black market in dollars to eventually dry up.

The government’s decision to remove the price cap came as the country’s economic situation worsened due to servicing endless external debts and battling rising inflation. Besides, left with only $3.68 billion in foreign exchange reserves, Pakistan barely has enough to cover three weeks of imports and desperately needs the IMF to release the next $1bn tranche of its bailout programme to head off a potential default.

One of the IMF’s primary conditions for reviving the loan programme was to remove the price cap of the dollar and a team of the international money lender is expected to arrive in Pakistan tomorrow to discuss the ninth review which has been pending for months.