The US dollar continued to surge in the interbank market on Monday, touching Rs164 for the first time in more than six weeks.
The greenback rose by another 50 paisa in intraday trade, translating to an increase of Rs3 in three trading sessions since markets opened for the first time after a week-long Eid break. The open market or cash market followed a similar trend in which the dollar rose Rs2.8 during the same period to hit Rs163.7.
In March, the first full month of lockdown, remittances were down 5% and it may worsen. Exports have plunged 24%. The country received $1.4 billion in emergency cash support from the IMF, which helped stabilize exchange rates despite foreign debt payments and falling remittances and exports—two of the country’s main sources for dollars.
Analysts warn that the worse has yet to come. In a separate report on Covid-19’s impact on the economy, the central bank pointed to a possible devaluation of the rupee in case the lockdown extends.
Two months ago, the dollar was very volatile. It rose to an all-time high of Rs169 on March 27 before a central bank intervention brought it down to Rs167 the same day. That sudden rise (a jump Rs10 in a matter of days) was primarily caused by an outflow of hot money that was parked in the country’s treasury bills.
As foreign investors took the money out, it put pressure on our dollar reserves and exchange rates.
However, the country soon received money from the IMF and other financial institutions as part of emergency support to fight the impact of COVID-19, which stabilized our reserves as well as the exchange rate. As of May, Pakistan had $12.3 billion in its reserves, enough to meet four months of import payments.