Brace for inflation as dollar hits all-time high

July 16, 2018

A currency trader counts Pakistani Rupee notes as he prepares an exchange of US dollars in Islamabad. PHOTO: REUTERS

Paying for college abroad? Next semester you’ll need a job because the dollar just hit an all-time high.

The Pakistani rupee fell to a record low on Monday. It was trading at Rs128 against the dollar when this report was published.

A stronger dollar will make everything, from an airline ticket to your utility bills and college tuition abroad, more expensive. When the dollar goes up against the rupee, every service and commodity paid for in dollars becomes expensive.

We import oil and gas for electricity, spare parts for automobiles, scrap for steel, coal for cement and pesticides for agriculture and pay in dollars for all these imports.

The dollar rose to Rs128 in the interbank market on Monday, a 5.3% increase from July 13 when it was trading at Rs121.46.

In other words, if you need $60,000 for an MBA program, you will pay an additional Rs400,000 because of this increase.

Artwork: Muhammad Obair Khan

Why is the dollar going up?

In January, the dollar was trading at Rs110.7 against one rupee but has since increased 15.6%, reaching an all-time high of Rs128 on Monday due to pressures on the country’s external front. Pakistan’s trade gap has widened to $37 billion as imports are 2.5 times higher than exports. This means we are consuming more imported items. This is not sustainable in the long term and leaves the country with fewer dollar reserves to pay for productive imports like machinery and petroleum that support economic activity. A stronger dollar would discourage imports of non-essential items and help stop the dollar drain.

Because of these external pressures, the incoming government is likely to seek another bailout from the IMF to increase Pakistan’s dollar reserves. In other words, the rupee will remain under pressure in near term as analysts predict the dollar will go up further before settling somewhere around Rs130.

 
 

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