The greenback gained Rs1 in four trading sessions this week
Completely disregarding the $1 billion in Saudi aid we received earlier this week, the dollar reached an all-time high of Rs135.2 in the first hour of open market trade on Friday.
The dollar has appreciated more than 25% against the rupee since December 2017 and remained very volatile in the last four months. Since mid-July, it rose or fell sharply on at least three occasions, witnessing its highest ever single-day jump of Rs10 on October 9 when it traded for Rs135 in the open market.
The volatility in the dollar rate was primarily because of a delay in the government’s decision to seek a fresh loan from the International Monetary Fund (IMF) to shore up its depleting dollar reserves, a must to keep the economy afloat.
After Pakistan officially approached the Washington-based lender for another bailout and secured an aid package of $6 billion (half of which is credit for oil imports) from the Saudis in late October, the dollar came down slightly. It was trading in the range of Rs133 to Rs134.
On Friday, the dollar surged 50 paisa compared to the previous day’s closing rate of Rs134.7 and gained Rs1 over the past four sessions, breaching its previous high.
The recent surge in dollar rates disregarded the fact that Pakistan’s dollar reserves increased by 13% to $8.3 billion on Monday after the central bank received $1 billion, the first installment of the $3 billion the Saudis had pledged in October.
Market sources say the rate has gone up because the market expects the State Bank of Pakistan will use its dollar reserves only to finance the trade gap, not dump them in the market, the past practice, which had kept the dollar from rising.
Talks between the government and the IMF have been put off till late January. On the other hand, Prime Minister Imran Khan’s recent visits to friendly countries China, UAE, and Malaysia have not resulted in support similar to what he got from Saudi Arabia. Given our low level of reserves, which are barely enough for two months of imports, this will keep the rupee under pressure.
The rupee devaluation against the dollar in the last 10 months has pushed prices up. Consumers are paying more on imported items and local products that use imported raw material (paid for in dollars). For example, car makers have increased prices because they import 70% of their parts while petrol prices have also gone up.