Interbank Rupee Declines By Almost Rs19 versus The Dollar Due To IMF Delays

March 3, 2023 / By Zunair Tahir / Pakistan News

On the interbank market on Thursday, the Pakistani rupee plunged drastically by Rs18.74 versus the dollar, reaching a record high of Rs284.85 in morning trade, according to information provided by the Exchange Companies Association of Pakistan (Ecap).

Experts blamed the government’s standoff with the International Monetary Fund for the record loss, which is 7.04 percent (IMF).

According to SBP statistics, the PKR closed Wednesday at Rs266.11 per USD.

Interbank closing #ExchangeRate for todayhttps://t.co/yixJmUnrgF pic.twitter.com/PWg8EoDAgM
— SBP (@StateBank_Pak) March 1, 2023

“Uncertainty resulting from IMF financing delay”
According to Mohammed Sohail, chief executive of Topline Securities, who spoke to Dawn.com, the recent decline was mostly brought on by a lack of confidence in the currency market due to the IMF’s delayed financing.

The “crackdowns on currency merely reinforced the grey market”
According to Zafar Paracha, secretary general of the Exchange Companies Association of Pakistan (ECAP), Pakistan was urged by the IMF to exchange dollars at the going rate for commerce with Afghanistan.

In other words, they had stated that rather than the interbank rate or the open market, our true rate should be the grey market rate. They are correct since the only location where trading in dollars now occurs is on the black market, he continued.

He claimed that because of limitations put in place by the government on foreign exchange, trading moved to the black market.

The numerous limitations they have placed on foreign exchange businesses regarding the buying and selling of the dollar, he claimed, prevent the currency from rising or falling.

He said that despite government crackdowns [on the grey market], this is still the case. Asserting that carrying out crackdowns would not assist, Paracha urged for a revision of the policies.

“Unintentionally, our policies have substantially aided the grey market. The IMF is aware of this as well, and has advised us to get our exchange rate between the rupee and the dollar to that level,” he continued.

The currency has been plunging in recent days amid delays in an agreement between Pakistan and the International Monetary Fund, which they have been discussing since early last month.

One of the things the IMF wants Pakistan to do is switch to a market-based currency exchange rate system. If the IMF’s board approves this measure, a financing tranche of over $1 billion that has been held up since late last year over a policy framework will be released.

The lender’s requirements are designed to make sure Pakistan reduces its fiscal deficit before presenting its annual budget in June.

But, the budgetary changes required by any agreement are expected to increase the already record-high inflation rate, which reached 31.5 percent in February.

The IMF has also asked Pakistan to increase policy rates and fulfil bilateral and multilateral external funding obligations.

China, Pakistan’s longtime friend, is the only nation to have refinanced $700 million to Islamabad.

At an off-cycle meeting on Thursday, the Pakistani central bank is generally anticipated to increase its benchmark policy rate by 200 basis points, according to a Reuters poll.

Interbank Rupee Declines By Almost Rs19 versus The Dollar Due To IMF Delays

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