The Pakistani rupee lost a huge amount of Rs18.98 versus the US dollar as trading on Thursday came to a close. After the closing of trade, the local currency hit a record low of Rs 285.09, according to the State Bank of Pakistan. The government’s impasse with the International Monetary Fund (IMF) has been cited by analysts as the root of this record-breaking drop’s 6.66% magnitude.
Currency restrictions just made the grey market more robust.
The International Monetary Fund (IMF) has requested that Pakistan trade US dollar at the current Afghan trade rate, which is equivalent to the grey market rate, rather than the interbank or open market rate, according to Zafar Paracha, Secretary General of the Exchange Companies Association of Pakistan (ECAP). This is due to the fact that money is only available and traded on the grey market, according to Paracha. Moreover, he pointed out that despite government crackdowns, the job had shifted to the grey market as a result of limitations on foreign currency. While performing crackdowns would not assist, Paracha urged a revision of the policies. According to Mohammed Sohail, CEO of Topline Securities, the recent decrease in the value of the Pakistani rupee is mostly attributable to market trepidation about the IMF’s delayed financing. According to Komal Mansoor, Head of Strategic Planning at Tresmark, the IMF required a 20% depreciation in the value of the rupee before the new deal would be carried out. Mansoor anticipates that the dollar will finally settle between Rs278 and Rs280 and that the State Bank will step in if it rises over this level. She continued by saying that this is the cause of the present spike in the dollar rate and that the market is anticipated to settle below Rs280 without additional currency depreciation.
Due to delays in an agreement that Pakistan and the International Monetary Fund have been discussing since early last month, the currency has been declining recently. One of the things the IMF wants Pakistan to do is switch to a market-based currency exchange rate system. If the IMF’s board approves this request, the financing tranche of over $1 billion that has been held up since late last year due to a policy framework will be released. The lender’s requirements are designed to make sure Pakistan reduces its fiscal deficit before presenting its annual budget in June. The majority of the other earlier steps, such as increasing the cost of gasoline and energy, ending subsidies in the export and power industries, and raising extra money via new taxes in a supplemental budget, have already been implemented by Pakistan. The budgetary changes required by any agreement, though, are expected to drive more record-high inflation, which reached 31.5 percent year over year in February. The IMF has also asked Pakistan to increase policy rates and fulfill bilateral and multilateral external funding obligations. The only nation refinancing $700 million to Islamabad is longtime friend China. According to a Reuters poll, the Pakistani central bank will likely increase its benchmark policy rate by 200 basis points on Thursday at an off-cycle meeting.
Delays in an agreement that Pakistan and the International Monetary Fund (IMF) have been negotiating since early last month have caused the Pakistani rupee to drop recently. To pass its ninth review, the IMF needs Pakistan to carry out a number of tasks, including switching to a system of market-based currency exchange rates. This would release a funding tranche worth over $1 billion that has been held up due to a policy framework since late last year. Before its annual budget in June, Pakistan will attempt to reduce its fiscal deficit via the prerequisites. The fiscal adjustments required by any deal are likely to fuel further record-high inflation, which reached 31.5% year-over-year in February, despite Pakistan having already taken most of the other prior actions, such as raising fuel and energy tariffs, eliminating subsidies in the export and power sectors, and raising revenue through new taxes in a supplementary budget. Two additional conditions put out by the IMF, namely hiking policy rates and committing to bilateral and multilateral external finance, remain unfulfilled by Pakistan. The only nation refinancing $700 million to Islamabad is longtime friend China. At an off-cycle meeting on Thursday, the Pakistani central bank is anticipated to raise its benchmark policy rate by 200 basis points, per a Reuters poll.
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