The US dollar fell to its lowest level against the rupee in four weeks after it decreased by Rs2.13 in the interbank market on Wednesday.
The greenback was trading at Rs158.45, down 20 paisa against the rupee, recording its eighth consecutive decline in as many days. The last time the dollar was trading at this level was on July 11.
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 throughout the day. The final rates for both cash and interbank market are compiled in the evening when business closes.
The foreign currency market remained uncertain, at times volatile, throughout the second half of 2018 and a similar trend was witnessed this year. Barring a few stints of stability, the dollar showed no signs of stabilizing. The rupee-dollar exchange rates became more volatile ahead of Pakistan’s formal entry to the IMF’s loan programme as the greenback rose sharply before falling again.
In the last week of June, the dollar had increased sharply to an all-time high of Rs164.2 against the rupee. It surged by Rs8 in a couple of days, witnessing its biggest one-day rise of the year on June 27, days ahead of the IMF’s approval for a $6 billion bailout package.
The dollar fell by more than a rupee to Rs157 on July 4 a day after the IMF dispatched the first tranche of nearly $1 billion to the State Bank of Pakistan and kept trading at the same level for the entire week.
However, it started increasing against the rupee and rose back to the Rs160 level shortly after.
The IMF requires, among other things, the government to leave exchange 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.
Both traders and end users have been closely monitoring dollar rates since the present government’s started its term in August 2018. The dollar was trading at Rs124 when the PTI government was sworn in, but rose by more than 27% to its current value since then.
As Pakistan formally enters the IMF program, 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, had said during a press conference. “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’.
In what may be a sign of stability for now, the SBP governor told the media at the last monetary policy announcement that whatever adjustment was needed in the exchange rate to fix the economic imbalances of the past has taken place already. Since his statement, the dollar has remained stable before falling to its current level in the last few days.