ISLAMABAD   -  Only days after the loan deal with International Monetary Fund, the US dollar touched all-time high at Rs146.25 in open market on Wednesday that would fuel the inflation rate and increase the volume of public debt.

However, the dollar later came down by Rs2.25 and closed at Rs144, relieving some pressure on the market. Earlier on Monday, the US dollar had gained Rs2 against the rupee in the open market.

Pakistan and International Monetary Fund (IMF) on Sunday agreed for three years loan programme worth of $6 billion. The country agreed with the IMF for not intervening in market for fixing the currency value, as it had done in the past.

“A market-determined exchange rate will help the functioning of the financial sector and contribute to a better resource allocation in the economy. The authorities are committed to strengthening the State Bank of Pakistan’s operational independence and mandate,” the IMF noted after holding negotiations with Pakistan.

Amid speculations in the market that dollar value would surge to Rs165 in next few months as a result of the government commitment to the IMF, its coming down to Rs144 was seen by many as the result of a meeting chaired by Prime Minister Imran Khan on Wednesday

In that meeting, it was decided to take stern action against such currency exchange companies as would flout the set rules and deviate from agreed currency rates.

Market sources believed that government’s assurance given to IMF about not intervening in controlling currency has conveyed negative message in the market. They said that speculations played the main role in increasing dollar value on Wednesday.

The rumours on the social media that dollar value could touch Rs165 mark in next few months encouraged the investors to buy dollars for investment purposes, sources added.

A senior official of ministry of finance informed The Nation that Pakistan and IMF had not agreed on currency devaluation. Pakistan however had assured the Fund that the government would not intervene in the foreign currency market and let the forces of demand and supply decides the dollar’s rate against the rupee, he said.

“The current increase in dollar value is only due to speculations and misinterpretation of deal with the IMF,” he added.

Former finance minister Asad Umar and former State Bank of Pakistan governor Tariq Bajwa had termed the dollar value at Rs140 at equilibrium, which means there was no need of further depreciate the currency, he explained.

The meeting

An ECAP delegation led by Sheikh Allaudin, Malik Bostan and Sheikh Mureed met with the prime minister Wednesday afternoon which was also attended by DG FIA, DG IB, Chairman FBR and Governor SBP.

The market experts believed that the decisions taken in this high level meeting at the Prime Minister House helped tame the crazy going currency market.

The currency rates agreed upon in that meeting were as follows: US dollar buying at Rs143.50 and selling at Rs144.00, Saudi Riyal Rs38.20 and Rs38.35, and UAE Dirham Rs39.05 and Rs39.20.

According to officials, strict compliance of these rates was emphasised during the meeting. ECAP will not stand by any company diverging from these set rates and will not stand with the companies running dual sets of rates or avoiding receipting, they said.

The president of exchange companies told a private TV channel after the meeting that after government’s assurance the US dollar stabled at Rs144 in open market.

He said the forex companies have suggested lowering the limit of dollar export to foreign countries to 3,000 instead of 10,000. He said this would improve the supply and demand situation. He added that the exchange companies would support government in stabilising the foreign currency.

Rupee slide and its effects

Pakistani rupee is continuously depreciating since November 2017 when a dollar valued at Rs105. The previous government of PML-N had increased the dollar value up to Rs115 in May 2018 when it left the government.

Later, the dollar value urged to Rs123 in August 2018 when PTI assumed the charge. Since then, the dollar value is continuously increasing and reached the historic high of Rs146.25 yesterday.

The increase in dollar value is bound to fuel inflation, which is already increasing due to the impact of previous devaluation and hike in energy costs. Inflation rate had touched five years highest level of 9.41 percent in March this year.

Senior officials of the ministry of finance and economic experts believed that inflation would go to double digits in next few months due to the impact of increase in petroleum products and devaluation in currency.

Similarly, the devaluation in currency would also increase the volume of loans and interest payment. Pakistan’s total debt and liabilities increased by over Rs200 billion in a single day after Wednesday’s depreciation.