The dollar hit its highest ever rate of Rs133.6 on Tuesday after another tumble of the rupee as news broke of Pakistan turning towards an IMF bailout.
The dollar surged by Rs9.26 and was traded at Rs133.6 at the close of the interbank market. This was the single biggest day jump in the dollar rate of the current year. Its interbank rate at the close of the market rose up Rs9.26 or 7.4% from yesterday’s tally of Rs124.33.
On Monday, Prime Minister Imran Khan gave the go signal to his finance team for an IMF intervention, when they hold talks with representatives of the Washington-based lender in Bali this week. The loan will rescue Pakistan from defaulting on foreign payments. However, it comes with its own set of limitations.
One of the conditions as an aftermath is a free float exchange rate as opposed to a managed exchange rate. This means that the central bank will not be able to intervene in the market and let market forces determine the actual rate of the US dollar against the Pakistani rupee. And this is exactly what seems to have happened in the first place.
The dollar surged to Rs133.6, up by 7.4% from Monday’s rate of Rs124.3. This is because the central bank is not selling dollars in the market or asking other banks to do it, market sources say.
“Yes, there is an upward movement in the dollar and market expectations are driving it,” State Bank of Pakistan Chief Spokesperson Abid Qamar told the press.
“The government decision to seek an IMF bailout package affected market expectations,” Qamar said, adding that in such scenarios, the dollar initially shoots up but gradually settles at a lesser rate by the end of the day.
The SBP spokesperson stated that he could not yet provide a quote for any rates at the moment because there were more than 30 banks, all quoting different rates, and it was changing by the minute. “We will know the actual rate and the high and low points when the market closes. All banks report their exchange rates to us,” he further said.
According to financial experts, the interbank market rate is the benchmark rate to evaluate the dollar’s value. The interbank rate is the one that determines the open market rate, which is usually slightly above the former, but does not represent the actual value of the dollar.
Pakistan is resorting to the IMF loan programme because its monthly imports greatly exceed its exports by $2.7 billion. According to the latest statistics available, the government has $8.4 billion left in reserves, which is alarmingly the lowest level of foreign exchange reserves in the past four years and is definitely not sufficient enough to sustain even two months of imports.
If Pakistan makes adjustments to its exchange rate, experts are convinced that the dollar will surge up to Rs140, and may even hit Rs150. However, others believe that it will close at around Rs135.