The dollar rose by Rs4.5 in the interbank market on Wednesday to set a new all-time high.
The greenback rose to Rs161.4, up nearly 2.8% from Tuesday’s closing rate of Rs156.9. This is the highest ever value of a dollar against the rupee.
This is also the biggest one-day increase in dollar rates this year. The dollar remained volatile through much of the year and more so ahead of Pakistan’s formal entry to the International Monetary Fund’s loan program, which requires, among other things, the dollar rate to be left on market forces.
On June 14, the dollar also rose steeply from Rs154.5 to Rs156.8 but has 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 a managed exchange rate to market-driven exchange rate. 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 open market or cash market rates usually remain higher than the interbank rate, the open market is likely to follow a similar trend. On Wednesday, the greenback rose to Rs163 in the open market, up by Rs5.8 from the previous day’s closing rate.
The dollar has been closely monitored by both traders and end users because it remained volatile through much of the present government’s tenure, starting from August 2018. The change of regime resulted in a change of policy whereby the central bank left the dollars to the forces of demand and supply as opposed to managing its rate artificially, which was the practice in the past. 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’.