The dollar continued its rising spree in the interbank market on Thursday, increasing by Rs2.8 to reach its new all-time high against the rupee.
The greenback rose to Rs164.2 in the opening hours of the market, up 1.7% from Wednesday’s closing rate of Rs161.4.
Yesterday, the dollar rose by R4.5 in the interbank market followed by an increase of Rs5.8 in the open or cash market in what was its biggest one-day increase this year.
The dollar remained volatile throughout the second half of 2018 and, barring a few stints of stability, showed no signs of stabilizing. The rupee-dollar exchange rates became more volatile ahead of Pakistan’s formal entry to the International Monetary Fund’s loan programme. The IMF, among other things, requires the government to leave the rates to market forces of demand and supply. This means the central bank would not fix the rate to keep the rupee artificially inflated, something it did in the tenure of former finance minister Ishaq Dar.
On June 14, the dollar also rose steeply from Rs154.5 to Rs156.8, but remained stable since then. The world’s most sought-after foreign currency has kept everyone on their toes in Pakistan since the central bank changed its policy from managed exchange rates to market-driven exchange rate, also a condition of the IMF. Left to the market forces, the dollar has been setting a new high every few weeks.
The interbank rate is the benchmark rate to determine the value of dollar and sets the direction for open market rates. Since the open market or cash market rate usually remains higher than the interbank rate, the open market is likely to follow a similar trend. The greenback was trading at Rs163 in the open market when it closed on Wednesday and rose by Rs0.5 in the first hour of trade on Thursday.
The dollar has been closely monitored by both traders and end users for it remained volatile through much of the present government’s tenure, starting from August 2018. The dollar was trading at Rs124 when the PTI government was sworn in, but rose by more than 25% to its current value since then.
As Pakistan formally enters the IMF programme in July, the policy of market-driven exchange rates will remain in place. The State Bank of Pakistan will neither fix the exchange rate nor completely leave it to market forces, Dr Reza Baqir, the SBP Governor said in his press conference last week. “We will keep a close eye on its movement and intervene to avoid any speculative movement and volatility,” he said. Dr Baqir termed the regime to be ‘market-based exchange rate system’.