The Pakistani rupee has hit an all-time low of 255 against the US dollar in the interbank market, marking a significant 9.45% (Rs24.11) drop in the currency’s value. This latest fall in the rupee comes as the government ended its control over the rupee-dollar exchange rate as part of the International Monetary Fund (IMF) condition. The local currency had closed at Rs230.89 against the greenback a day earlier, according to the State Bank of Pakistan (SBP). Despite the fall in the rupee, the Pakistan Stock Exchange (PSX) rose by 1,200 points during the day.
The decision to end government control over the rupee-dollar exchange rate was among the four significant conditions set by the IMF for the resumption of the stalled loan program. The Fund had asked the government to let the market forces (mostly commercial banks) determine the exchange rate. The rupee had remained under government control since September 2022 when Ishaq Dar took charge as the finance minister. At that time, Dar had said that the fair value of the rupee stands in the range of Rs180-200/USD.
The finance minister also believed market forces had artificially undervalued local currency to Rs240/USD first time in July 2022 and the second time in September 2022. Accordingly, the central bank conducted a probe against banks and found 13 banks guilty. Earlier this month, the SBP said that it will take action against the banks in the coming days.
The IMF has asked Pakistan to implement a market-based exchange rate, lift restrictions on imports, and increase taxes and electricity prices. However, the government has not yet taken any of these measures and is waiting for a formal engagement with the global lender before kicking in these actions.
The country’s foreign exchange reserves have dropped to just half a month of import cover after making a fresh debt repayment of $500 million. Pakistan paid $500 million to a Chinese commercial bank that has now pulled down the reserves to a level that cannot be described as comfortable by any standards. The Pakistani rupee fell 9.6% against the dollar on Thursday, central bank data showed – the biggest one-day drop in over two decades – in a slump that may persuade the International Monetary Fund to resume lending to the country.