The rupee continued its downward slide in the interbank market on Friday, closing at Rs. 262.6 per dollar after declining by a further Rs. 7.17, or 2.73 percent from yesterday’s close of Rs. 255.43/dollar.
According to data issued by the State Bank of Pakistan (SBP), the currency’s value decreased for a second consecutive day. On Thursday, after authorities removed an unofficial rate cap on the exchange rate, the rupee had slid by Rs. 24.54 to a record low of Rs. 255.43 in the interbank. This measure has been seen as key to reviving a stalled International Monetary Fund (IMF) program, with economists stressing that Pakistan would be unable to attract significant inflows if it doesn’t fulfill the strict conditionalities imposed by the global lender ahead of a pending ninth review.
The IMF has responded positively to the market-determined exchange rate, announcing on Thursday night that it would send a team to Pakistan next week to continue discussions on the ninth review.
The depreciation witnessed in the open market was significantly lower than the interbank. The dollar was trading at Rs. 265, according to the Exchange Companies Association of Pakistan, a depreciation of Rs. 3, or 1.15 percent, against Thursday’s rate of Rs. 262.
Market watchers claim that the minimal difference left between the open market and interbank rates will facilitate the use of formal banking channels in the comings weeks and should boost remittances, helping to bolster the country’s declining foreign exchange reserves. Previously, due to the higher rates offered by the open market compared to the interbank, overseas Pakistanis were preferring to remit their earnings through informal channels.
Pakistan is currently in the midst of a severe balance of payments crisis, with the central bank’s data showing its foreign exchange reserves have hit $3.7 billion, barely sufficient to cover even three weeks of imports. Promised inflows from “friendly” nations have yet to materialize, with authorities saying they have been linked with the revival of the IMF program, leaving the government with little choice but to fulfill “harsh” conditions, including higher utility tariffs and withdrawal of all subsidies.
Thus far, the government has appeared unwilling to implement the conditions required by the IMF, but the decision to return to a market-determined exchange rate is being seen as a sign of sincerity to completing the bailout program.