The dollar was trading at Rs140.35 in the open market Monday afternoon, up nearly 11 paisa from its rate of Rs140.24 when the market closed on Friday.
The greenback hit Rs140.5 in the open market on Friday, breaching its previous high of Rs140.3 that it hit in November last year, keeping buyers and sellers on their toes, especially in the second half of 2018. However, it closed at Rs140.24.
Last year, the dollar appreciated 27% against the rupee, witnessing two of its biggest ever single day jumps in the short span of one and a half months. It was one of the most volatile years in terms of exchange rates.
Experts attribute last year’s rise in dollar rates to our depleting foreign exchange reserves, which fell below $7 billion in December. This level was not sustainable beyond two months of import payments. The shortage of dollars had kept rupee under pressure for most of 2018 and resulted in its devaluation.
However, the government was able to secure back to back aid packages from Saudi Arabia and the UAE during Prime Minister Imran Khan’s visits last year. The Saudi government has dispatched the $3 billion it had pledged in support of our foreign exchange reserves. The UAE, on the other hand, has sent $2 billion and will send another $1 billion soon.
As Pakistan started receiving these loans, the dollar became stable. However, the current level of reserves, $8.9 billion, is still not enough to cover three month cover for import payments.
China has recently committed $2.1 billion to support Pakistan’s dollar reserves and that payment is expected on March 25, which may ease some pressure off our existing reserves.
Previously, experts had predicted the dollar may touch Rs150 but the recent dollar inflow has prevented the rupee from falling to that level. Presently, Pakistan is negotiating a loan package from the International Monetary Fund (IMF) but a breakthrough in talks is awaited. An IMF delegation is scheduled to visit Islamabad on March 26 and the package is likely to be agreed in Washington next month.
Experts say the IMF will set difficult economic reform targets for Pakistan including a free-float exchange rate, which may result in further depreciation of the rupee. However, others argue the rupee has already depreciated enough to reach its real value against the dollar.