Value of rupee falls by another 40 paisas against dollar

Money dealers counts Pakistani rupees (R) and US dollars at a currency exchange in Islamabad on March 12, 2014. Photo: AFP

The value of rupee fell by another 40 paisas against the US dollar, a day after the dollar’s value rose by Rs6.

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. On Tuesday, the value of the dollar rose to Rs128.40.

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.