Rupee dips vs dollar on first working day of the interim government
Spread the love

On Tuesday, the dollar price jumped 3 rupees to Rs291.51 in a single session in the interbank market on the first day of the interim government.

Market dealers said the new caretaker set-up put pressure on the local currency as the market felt more uncertain.

Atif Ahmed, a currency dealer in the interbank market, expressed concern that the interim government would follow the IMF’s dictations for the exchange rate regime.

On Tuesday, the dollar traded at Rs291.51, an increase of 1.04 percent over the previous price of Rs288.49.

The government has reached an agreement with the IMF to lift all restrictions on imports, which means the government will buy dollars for imports in the coming days.

In FY23, the previous PDM government had imposed tough restrictions on imports, saving $20-25 billion compared to FY22. In FY23, the previous government’s import policy was widely criticized due to the massive decline in economic activity, which resulted in a GDP growth of just 0.3%.

In the coming days, the opening of imports will certainly increase demand for dollars. “Today is a reflection of this high demand and higher dollar prices,” said Zafar Paracha, General Secretary of the Exchange Companies Association of Pakistan.

The State Bank’s foreign exchange reserves stand at about $8 billion, while the country needs $25 billion for debt servicing in FY24. Market participants questioned the interim government’s ability to handle the situation in accordance with IMF guidelines.

As part of the $3bn IMF bailout programme, the country will have to import more than $20bn in FY24, in addition to about $49.5bn last year. The exchange rate was expected to remain under pressure throughout the fiscal year due to imports.

Mr Paracha added that the previous government did not allow profits and dividends to leave the country, which discouraged foreign investors.

According to State Bank data, profits and dividends were held back by $1 billion in FY23 compared to FY22.

Analysts believed that such profits would be in the range of $3-4bn, but no evidence was available.

According to bankers, the decline in remittances and exports also contributed to the depreciation of the local currency. As a result of a decline in remittances and exports, the country lost about $8.2bn in FY23.

In July FY24, remittances fell by 19.3 percent (about $500 million) compared to July FY23. During July this year, remittances totaled $2 billion, compared to $2.5 billion last year.

As of Aug 11, the dollar appreciated by R4 to Rs300 in the open market from Rs96. It is important to note that the official rates provided by the exchange companies are not considered market rates.