The US dollar has been trading slightly above Rs139 against the rupee for more than two weeks, an indication that it has achieved stability while ending what was one of its most volatile years in terms of exchange rates. However, experts say it may fall further if the government’s dollar reserves aren’t increased soon.
Since hitting its all-time high of Rs140.3 in November, the dollar had been trading in a close range of Rs139 to Rs140 and showed no major fluctuations unlike rest of the year.
In the outgoing year, the dollar appreciated by Rs4 or more in one day at least on 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 intra-day 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 dollar price against the Pakistani rupee is due to the change in our exchange rate policy and the rising value of the dollar in the international market. All major currencies that were pegged against the dollar depreciated this year. Besides, 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 can’t do much about it since it does not have enough dollars to sell that could have controlled exchange rates by increasing the supply of dollars. This demand and supply gap has been causing the exchange rate movement, the central bank says.
We are facing a shortage of dollars because our imports are more than double our exports. For every dollar earned, we spend two, which leaves us with fewer reserves to pay for essential imports (oil, raw materials, machinery etc), and to repay its 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 taking help from friendly countries.
So far, we have secured back-to-back aid packages worth $6 billion from Saudi Arabia and 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 payment of essential imports and foreign loan because its reserves stand at $7.4 billion, not enough to sustain even two months of imports.
The talks with the IMF have delayed already and there are reports we cannot join the IMF program until March 2019. Market analysts say the dollar may go further up in case of a further delay in talks with the IMF. Prior to the recent increases, some analysts predicted it would cross Rs140 level but a few even said it might touch Rs150 by June 2019.