The Pakistani Rupee hit a record low of Rs 255.43 against the United States dollar in local markets on Thursday, indicating a 9.61 percent depreciation in a single day after the price cap on the exchange rate was removed.
According to financial experts, it was the largest single-day decline in the value of the Pakistani rupee since the introduction of the new exchange rate system in 1999.
Meanwhile, there has been a major difference in rates between the interbank and open markets, which had widened to Rs15 in recent months. Now with the removal of the price cap, that difference is almost wiped out.
Over the past months, the exchange rate was not adjusted based on demand and supply in the market, instead, it was adjusted based on the price cape, according to Topline Securities CEO Mohammad Sohail.
“State Bank of Pakistan’s (SBP) move to allow the dollar appreciation was an excellent policy for the market. However, there were no sellers in the market,” Saad bin Naseer, Director of financial data and analytics portal Mettis Global said.
Naseer added that adhering to a market-based exchange rate is one of the requirements to complete the ninth review of the IMF loan program, which would unlock $1.2 billion.
Meanwhile, Malik Bostan, Chairman of the Exchange Companies Association of Pakistan said that commercial banks were not supplying dollars to the exchange companies despite the SBP’s directives. With the removal of the cap on the dollar rate, it is appreciating, and it will continue until the supply resumes.
Furthermore, the removal of the price cap on the dollar caused an artificial distortion and a black market where people exchanged dollars at higher rates.
This comes as Pakistan is currently faced with a major economic crisis, trying its best to meet the requirements of the ninth loan from the IMF to alleviate economic pressures and move forward accordingly.