The Pakistani rupee fell 9.6% against the dollar on Thursday. Central bank data showed his biggest one-day drop in more than two decades in a slump that could persuade the International Monetary Fund to resume lending to the country.
The decline comes a day after foreign exchange firms lifted exchange rate caps, a key IMF requirement, as part of an economic reform program agreed with cash-strapped South Asian countries.
The official price of the currency closed at 255.4 rupees against the dollar on Wednesday at 230.9 rupees, according to the central bank.
Faced with a severe balance of payments crisis, Pakistan desperately seeks external financing, with foreign exchange reserves covering less than three weeks of imports, at $923 million at the latest data. It decreased to $3.68 billion.
Pakistan secured a $6 billion IMF bailout in 2019. Last year, another $1 billion was added to help the country after devastating floods, but the IMF suspended spending in her November.
Lenders announced Thursday that they will be sending a mission to the country at the end of January to discuss resuming the program.
The IMF is not only calling on governments to take fiscal measures, but also to move to a market-determined exchange rate regime, as emphasized in Thursday’s statement.
The foreign exchange firm said Wednesday it had removed the cap for the country because it was causing an “artificial” distortion to the economy.
Wednesday’s move by foreign currency dealers whose open market rate differed from the rate advised by the central bank had a cascading effect on Thursday’s official exchange rate.
According to JS Global, a Pakistani brokerage, the drop in the official discount rate was the largest since 1999 in both absolute value and percentage.
Trading data from the Association of Stock Exchanges of Pakistan (ECAP) showed that in the open market, the rupee fell about 7% to 262 against the dollar from 243 to 262, down 1.2% on the previous day.
“We have asked the central bank to raise the interbank rate to help fight the black market,” ECAP President Malik Bostan told Reuters.
The State Bank of Pakistan (SBP) and the Ministry of Finance did not respond to Reuters requests for comment.
Since Finance Minister Ishaq Dar was appointed in September, attempts to defend the rupee, including reported interventions in currency markets, have run counter to IMF advice.
However, the Pakistan Stock Exchange reacted positively to the rupee’s depreciation, with the KSE 100 Index gaining more than 1,000 points, or 2.5%.
“Markets are reacting positively as the rupee depreciation removes uncertainty about the upcoming economic roadmap and the resumption of IMF programs,” said Tahir Abbas, head of research at Arif Habib Limited. rice field.
Karachi-based broker Topline Securities said spreads between official and open market rates widened as its foreign exchange reserves plummeted from $8 billion in September to $4.6 billion as of January 13. and generated a surplus. Dollar market due to low supply.
The sharp drop in interest rates hit banks hard. According to two of his officials at a commercial bank operating in Pakistan, previously he had borrowed at Rs. must be settled.
The officials, who spoke on condition of anonymity, told Reuters that the hardest-hit banks were those that didn’t receive enough dollar inflows.
While the move increases the chances of IMF funding resuming, Pakistan is also reeling from decades of high inflation, a situation economists fear will get worse. Most of Pakistan’s important imports, including fuel, are paid in dollars.
“This will give a huge boost to the already building price pressures in the economy,” said Pakistani macroeconomist Sakib Sherani, who said the consumer price index (CPI) figure was the lowest in the country so far. He added that he was heading to levels he hadn’t seen before.
Average inflation for the first half of the fiscal year ending June was 25%. Central banks have also tightened monetary policy significantly, with key interest rates at multi-decade highs and growth coming to a sharp halt.
The ensuing economic crisis has also put political pressure on the government, with former Prime Minister Imran Khan calling for the abolition of general elections.
