KARACHI: Ahead of the monetary policy review and delay in the International Monetary Fund (IMF) deal, the local unit plunged by over Rs18.89 against the US dollar during intra-day trade in the interbank market.
The rupee was being traded at 285 against the dollar at around 11:36am. It had closed at Rs266.11 a day earlier.
Meanwhile, the dollar is traded at Rs292 in the open market.
ECAP general secretary Zafar Parahca said the main concern in the market is the delay in the agreement with IMF, however, the lender’s condition to peg the currency rate with that of the grey market — also referred to as the Peshawar market — has triggered uncertainty.
Paracha said, in his view, the current rate is too high and shouldn’t have risen that much.
He added that in the grey market, the greenback was being traded at Rs290 a day ago.
Meanwhile, currency market expert Adnan Asghar said the currency had been sliding after delays in a deal between Pakistan and the IMF. He said the country was “nearing a default situation” with this delay.
“Uncertain political situation remained another factor behind the rupee’s depreciation,” he added.
Pakistani authorities have been negotiating with the IMF since early February over policy framework issues and are hoping to sign a staff-level agreement that will pave the way for more inflows from other bilateral and multilateral lenders.
Once the deal is signed, the lender will disburse a tranche of more than $1 billion from the $6.5 billion bailout agreed to in 2019.
Pakistan has already taken a string of measures, including adopting a market-based exchange rate; a hike in fuel and power tariffs; the withdrawal of subsidies, and more taxation to generate revenue to bridge the fiscal deficit.
Officials say the lender is still negotiating with Islamabad over power sector debt, as well as a potential rise in the policy rate, which currently stands at 17%.
The strict measures are likely to further cool the economy and stoke inflation, which stood at 31.55% in February.
The South Asian country’s economy has been in turmoil, and desperately needs external financing, with its foreign exchange reserves dipping to around $3 billion, barely enough for three weeks’ worth of imports.
New ‘Peshawar market’ proposal
According to a The News report, the IMF side has proposed a different prescription to Pakistan for allowing further depreciation of the rupee against the greenback.
“The lender is demanding for placement of a market-based exchange rate equivalent to the level of higher side prevalent in the bordering areas adjacent to Afghanistan,” the report said.
The IMF has shown its uneasiness over the different rates in the interbank market and dollar rate offered in the “Peshawar market” as traditionally there was an incentive of Rs20 against the US dollar.
This new prescription by the IMF on the exchange rate has triggered a debate between the Washington-based lender and Pakistan’s economic team.
The incidents where the Afghan businessmen bought dollars from Peshawar by paying Rs20 extra against the prevalent rate of the interbank market cannot be replicated for the whole of Pakistan, an official told the publication.