ISLAMABAD - The value of dollar surged to an all-time high of Rs128.26 in the interbank market on Monday that would unleash a new wave of inflation and increase the overall debt of the country.

The value increased by Rs6.75 in interbank market in a single day while it surged by Rs4 taking the rate to Rs128.20 in the open market.

The Ministry of Finance and State Bank of Pakistan (SBP) have kept silence on the rupee depreciation. Sources informed The Nation that ministry and the central bank would not intervene in the market.

“Market itself will determine dollar rate,” said an official of the ministry. “The SBP is of the view that this adjustment in the exchange rate along with the increased policy rate and other administrative measures, would help contain domestic demand in general, and reduce the imbalances in the country’s external accounts in particular,” the central bank said in a statement.

“The SBP will continue to closely monitor the evolving fundamentals of the economy, and stand ready to ensure stability in the financial markets.”

Pakistani currency is under severe pressure currently due to tumbling foreign exchange reserves of the country. The reserves held by SBP are fallen to $9.5 billion.  The reserves would remain under pressure due to widening of current account deficit and loan repayment. The reserves are falling as the country’s trade deficit hit the historic level of $37.67 billion during previous fiscal year (FY2018) as imports increased faster than exports.

Pakistan’s imports have recorded at $60.9 billion during FY2018 as against $52.9 billion of the previous year showing an increase of 15.1 percent.  The country’s exports increased to $23.2 billion during FY2018 as against $20.4 billion of the corresponding period of the previous year showing growth of 13.74 percent.

Pakistan’s currency had devalued by around 21 percent since December 2017, as the dollar value has enhanced by Rs22.5. The sharp rupee depreciation has added Rs2,000 billion to overall debts in last eight months.

The SBP has also already increased the policy rate by 100 basis points to 7.50 percent effective from July 16 2018 due to expected increase in inflation. The central bank has warned that inflation would increase due to unfavourable trend in international oil prices and lagged pass-through of rupee depreciation.

Businesspersons raise concerns

The business community has expressed concerns over the sharp rupee depreciation and recent in increase interest rate by one percent.

“The caretaker government has badly failed to stabilise the economy,” said Sheikh Amir Waheed, President of Islamabad Chamber of Commerce and Industry (ICCI). He said that the sharp fall in the value of rupee would further enhance cost of production that would make products highly uncompetitive in the international market and cause further fall in exports.

He said at a time when the local currency was experiencing constant devaluation, exports were falling, trade and current account deficits were rising, the government should have maintained easy monetary policy by keeping interest rate low so that private sector could avail easy credit facility for expanding business activities and play leading role in reviving the economy.

He was afraid that rupee devaluation and 100 basis points increase in the interest rate would further make cost of doing business almost unaffordable for private sector. He emphasised that government should withdraw recent hike in interest rate and go for its gradual increase to save the private sector from further troubles.

Money market dealers said in open market the local currency has plunged to Rs130 against the greenback, which remained short in supply. Though the State Bank of Pakistan Governor Tariq Bajwa in a statement the other day denied any move for devaluation, analysts blame the regulators for this single day record depreciation.

They said Caretaker Finance Minister Shamshad Akhtar’s statement of approaching the International Monetary Fund for a bailout package was the major reason for dollar jump.

Financial experts said this would be the 4th time that Pak rupee has devalued since December 2017 and is now down a cumulative 20 percent.

The government had devalued the rupee by 5 percent in Dec 2017 to Rs110, 4.5 percent to Rs115 in March 2018 and 5 percent in June 2018 to Rs121. During the last 10 years, Pak Rupee has devalued annually by around 5 percent.

Experts believe this is much needed as Pakistan’s external account continues to deteriorate with the external Current Account Deficit (CAD) down during FY18 by higher than expectations.

CAD is now expected to increase to a whopping $18.0b (5.8 percent of GDP) in FY18 compared to $12.6b (4.1% of GDP) previous year.

Forex Association of Pakistan Chairman Malik Bostan said devaluation has never helped control external deficit. He said Pakistan’s widening current-account deficit and the lowest foreign reserves in three and a half years have brought additional pressure to the already fragile economy, raising the likelihood that the country will seek support from the International Monetary Fund.

Experts said that present devaluation is a positive signal on the economic front to investors that the much required steps are being taken to address the burgeoning external account. They expect Pak rupee to further devalue to Rs131 by Jun 2019.

LCCI Acing President Nadeem Qureshi said dollar once again started to crush Pak rupee that will reignite high inflation and halt growth by hitting all the important sectors of economy.

“US dollar price against rupee was Rs.4.76 in 60s, Rs.59.30 in 2005 and reached the heights level during the current financial year. Soaring dollar price led to trade deficit, import costs, hike in POL prices etc”, he said.

Saarc CCI vice president Iftikahar Malik said the recent surge in the prices of the greenback would jack up the input cost that would hit the export-oriented industries hard.

Iftikhar said that the SBP needs to ascertain the factors weakening the value of rupee and check the possibilities of undue speculations and malpractices in the operation of foreign exchange markets. This will help stabilise rupee and restore the confidence of the business community.

He said an unchecked increase in the dollar rates is multiplying the cost of doing business and badly affecting the industrial, manufacturing and agriculture sectors as Pakistan has to import fertilisers, food items, oil, machinery and industrial raw material.