In the midst of continuing political unrest and Islamabad’s failure to reactivate the crucial International Monetary Fund (IMF) program, the Pakistani rupee reached a new record low on Wednesday. In the interbank market, the currency reached at 287.85 against the US dollar.
The rupee lost Rs0.56 or 0.2% and closed at 287.85, the State Bank of Pakistan (SBP) stated. The exchange rate had reached 288.25 to the dollar yesterday. This had come after the rupee dropped by Rs2.25 or 0.8% on Tuesday to a new record low of 287.29 against the dollar in the interbank market.
Interbank closing #ExchangeRate for todayhttps://t.co/tH300nYbcv pic.twitter.com/d80vTCjZFD
— SBP (@StateBank_Pak) April 5, 2023
The State Bank of Pakistan (SBP) Monetary Policy Committee (MPC) declared it was increasing the policy rate by 100 basis points (bps) to an all-time high level of 21% to combat rising inflation in a significant development that occurred after markets ended on Tuesday.
It did so in the hope that monetary tightening would aid in achieving the medium-term inflation goal, but this belief may be in jeopardy due to internal political unpredictability and general financial instability.
General Secretary of the Exchange Companies Association of Pakistan (ECAP) Zafar Paracha has said that several reasons were responsible for the rupee’s downward trend against the US currency.
“The primary reason is the postponement in the IMF program’s restart. On this front, we have not seen any encouraging developments,” he said. “Secondly, because parties are still at odds, the internal political climate is unstable. Additionally, the nation’s exports, remittances, and foreign currency assets all continue to fall, harming market sentiment,” Paracha added.
He added that recent assessments on Pakistan from the World Bank and Asian Development Bank were also having an effect on the market. Exports, transfers, and foreign direct investment (FDI) have not grown despite the currency decline, he added.
Furthermore, he said, “the government’s bad policies are to blame for the currency underground market’s continued prosperity.” Exchange Companies (ECs) are not permitted to host the exporters, however. In order to satisfy the importers’ financial requirements, the government ought to have provided a formal window.
On a global scale, the US dollar was mired near two-month lows on Wednesday as lacklustre economic data supported theories that the Federal Reserve’s tightening cycle is about to come to an end.
After falling 0.5% over night, the dollar index, which compares the value of the dollar to six other currencies, softened to a new two-month bottom of 101.43. It was at 101.53 last.
The newest production reduction goals set by the OPEC+ producer coalition and forecasts of falling US petroleum inventories both helped to push up oil prices, a crucial sign of currency parity, higher on Wednesday.