KARACHI   -   Pakistani rupee further lost its value by Rs1.84 against the US dollar on Thursday and reached Rs164 in the interbank market. In the open market, the greenback is being traded at Rs164.25 after an increase of 1.25 paisas. Within just two days, surprisingly, the devaluation of the local currency has been recorded to be more than Rs7, a private television channel reported Thursday. The massive fresh devaluation of rupee has been observed despite assurance of the new governor of the State Bank of Pakistan (SBP) Governor Reza Baqir that there would be no free-float in the market as it was not suitable for the country’s economy. He had said that the exchange rate would be market-based.

However, the value of the US dollar against the rupee touched another historical high as the greenback hit Rs162.16 in the interbank market after rupee devalued by Rs5.18. The significant hike in the value of the US dollar has raised fears that prices of essential commodities, particularly imported products, would follow the similar trend. Since the start of this month, the rupee has been devalued by Rs16.42 which in turn has raised Pakistan’s external debt by more than Rs1,400 billion.

According to experts, the government must ensure implementations on economic policies after the deal with the International Monetary Fund (IMF). It is anticipated that the US dollar rate would fluctuate for some time, and the value of the Pakistani rupee would stabilise after proper implementation of the economic policies. Economists, amid the widespread speculations about the currency’s free-float in the market, fear that the rate of the greenback may rise further. Currency dealers are anticipating that the financial year end, coupled with rumors about a higher future value of the dollar, are responsible for the current situation.

Last week, State Bank of Pakistan (SBP) Governor Reza Baqir held a press conference, and took businessmen and investors into confidence that Pakistan had accepted all conditions of the International Monetary Fund (IMF), and expressed hope that the global moneylender would approve the bailout to Pakistan on July 3.

Furthermore, following the approval, other international financial institutions are also likely to extend financial assistance to Pakistan, which in consequence would result in high inflows of the greenback. The volatility in the currency market had subsided in the days prior to Eid-ul-Fitr amid high inflows during the festive season.

 According to economists, Pakistan’s monthly average imports are around $4 billion, while exports are only $1.7 billion. The remittances help recover the fiscal deficit to some extent, but the demand of the greenback remains high due to payments of the state’s loan.

 However, they were of the view that due to such a significant gap between exports and imports, the trade deficit has been increasing, but in the coming days – after new proposed taxes are imposed – the production costs of export sector would increase [due to rupee devaluation] and consequently the situation would be worsened for the export sector of the country.

The interbank rate is the benchmark rate to determine the value of dollar and sets the direction for open market rates.

Since open market or cash market rate usually remains higher than the interbank rate, the open market is likely to follow a similar trend.