KARACHI: The US dollar scaled new heights against the rupee to cross the 300 barrier in the interbank market on Thursday, as importers seek more dollars to clear a backlog of goods caused by government’s now-lifted restrictions.
The State Bank reported the closing price of the dollar at Rs300.22 against Rs299.64 a day before in the banking market.
The rupee also depreciated by Rs2 in the open market to Rs314, according to the Exchange Companies Association of Pakistan (ECAP). However, the buying rate was much higher in the open market, and most exchange companies offered dollars at much higher prices than they bought from sellers.
As the rupee continues to weaken, the speculation that the International Monetary Fund wanted to see a 20 per cent devaluation in the rupee’s value this fiscal year was getting stronger.
The reasons for the devaluation being offered by the interbank market were the same: high dollar demand due to the opening of restricted imports.
However, the most worrying aspect for the financial sector was increasing import prices fuelling inflation, which is already around 30pc.
“This imported inflation, along with the existing domestic inflation, will surely increase the interest rate, which is the only remedy lying with the State Bank or the Ministry of Finance to counter inflation,” a senior banker said.
Bankers also held the IMF responsible for inflationary policy by removing the restrictions on imports, forcing the government to impose taxes and increase fuel and electricity prices.
“I can safely say there is still unseen and untold resistance in the banking market against the free exchange rate. If this influence is removed, the market will see a sudden jump like in the open market,” Atif Ahmed, a currency dealer in the interbank market, said.
The local currency has lost people’s confidence, and investors and people willing to protect their savings were looking for dollars in the open market. However, to their shock, the dollar rate was much higher than the one displayed at exchange firms.
A customer said he sold the dollar at Rs319, indicating that the exchange companies might have been selling it for at least Rs322 or more. There is no central control over the dollar prices in the open market, particularly after the government signed a short-term loan agreement with the IMF in late June.
“The interim government has yet not announced any economic policy that may help the exchange rate to stabilise. As long as the current economic uncertainty prevails, the dollar will keep going up,” Amir Aziz, an exporter of textile finished products, said.
He said the costly dollar had affected both importers and exporters. Besides, a record 22pc interest rate had already destroyed domestic investments while the banks were willing to park their maximum liquidity in government papers to get risk-free profits, he added.
Data released by the State Bank shows no borrowing by the private sector since the beginning of the new fiscal year.
Published in Dawn, August 25th, 2023