In 2018, the greenback increased 27% against the rupee to reach an all-time high of Rs140.3
The US dollar traded slightly above Rs139 against the rupee on the fifth consecutive session when the market opened on Monday, an indication that the greenback is ending its most volatile year in terms of exchange rates on a stable note.
The dollar had been trading in a close range of Rs139 to Rs140 for more than two weeks and showed no major fluctuations unlike the rest of the year.
In the outgoing year, the dollar appreciated by Rs4 or more in one day on at least five occasions and fell by Rs4 during intra-day trade only once. Overall, the dollar’s rate has appreciated 27% against the rupee, witnessing two of its biggest ever single day jumps in the short span of one-and-a-half months.
On November 30, the dollar jumped Rs9.5 to Rs143.5 in the interbank market in what remains its highest intraday gain and highest ever level in its history respectively. However, it closed at Rs140.3 the same day. Since then, it has come down to Rs139.
The interbank rate is the benchmark rate that determines the rupee’s value against the US dollar and usually remains slightly below the open market rates.
The surge in the dollar price against the Pakistani rupee is due to the change in our exchange rate policy and rising value of dollar in international market. All major currencies that were pegged against the dollar depreciated this year. Besides this, Pakistan has moved away from a managed exchange rate regime to a free float policy, allowing market forces of demand and supply to determine the dollar price.
There are fewer dollars in the market against the demand, which is pushing the dollar rate up. The State Bank of Pakistan can’t do much about it since it does not have enough dollars to sell in the market that could have controlled exchange rates by increasing the supply of dollars. This demand and supply gap has been causing exchange rate movement, the central bank says.
We are facing a shortage of dollars because our imports are more than double of our exports. For every dollar earned, we spend two, which leaves us with fewer reserves to pay for essential imports (oil, raw materials and machinery etc), and to repay our foreign loans (more than $90 billion). To address this balance of payment crisis, the government has been exploring all options from seeking a loan from the International Monetary Fund to getting help from friendly countries.
So far, we have secured back-to-back aid packages worth $6 billion from Saudi Arabia and the UAE. We have already received $2 billion from the Saudis, which provided temporary stability in the exchange rates by increasing our dollar reserves. However, the country needs more dollars to continue payments for essential imports and foreign loans because it has only $7.4 billion in its reserves, barely enough for two months of imports.
The talks with the IMF have been delayed already and there are reports that we cannot join the IMF programme until March 2019. Market analysts say the dollar may go further up in case of a further delay in talks with the IMF.