Pakistani currency devalued after lifting of restrictions
2023.01.25 04:48
Pakistani currency devalued after lifting of restrictions
By Kristina Sobol
Budrigannews.com – On Wednesday, foreign exchange firms removed a cap on the Pakistani rupee, claiming that it was causing “artificial” market distortions as the South Asian nation struggles to escape a worsening economic crisis. As a result, the Pakistani rupee fell by 1.2%.
Pakistan’s rapidly diminishing foreign exchange reserves, which are barely sufficient to cover a month’s worth of imports, make it difficult for the country to meet its obligations regarding external financing. It also suffers from decades of high inflation, which policymakers are attempting to reduce through significant interest rate increases.
The Exchange Companies Association of Pakistan said in a statement that early trade saw the rupee offered at 243 and bid at 240.60 to the US dollar. On Tuesday, the range was 237.75/240 at the close.
In the current fiscal year 2022-23, which comes to an end on June 30, the rupee has lost 11.23 percent against the US dollar so far.
Late on Tuesday, the exchange association announced that the cap on the currency would be lifted in the country’s best interest.
Secretary General Zafar Paracha stated in a statement:
“We have decided that we bring the exchange rate at par what we are supplying to the banks against credit cards,” stating that this level is 255/256 rupees to the dollar.
Markets looked at three different rates to determine the rupee’s value before the cap was lifted: the official rate set by the state bank, the rate set by foreign exchange companies, and the black market rate.
Mohammed Sohail, CEO of brokerage Topline Securities, stated:
“Though the bank rate for today has yet to be disclosed, we think the dollar rate in banks may fall by up to 5% in a few days.”
Sohail stated that participants in the stock market believe that the removal of the cap may be a step toward liberalizing the exchange market, which will assist the nation in obtaining stalled IMF funding.
The International Monetary Fund has not yet approved its ninth review to release $1.1 billion, which was supposed to be distributed in November of last year but was delayed due to problems with fiscal consolidation.
As conditions for releasing the funding, the IMF has called for fiscal measures to reduce the budget deficit that include cutting subsidies, reducing debt in the energy sector, increasing taxes to make up for the revenue shortfall, and establishing a market-based exchange rate.
On Tuesday, Pakistani Prime Minister Shehbaz Sharif stated that his country was prepared to discuss all of the demands made by the IMF.
