Dar-pegging is evidently out of the game now as the Pakistani rupee (PKR) tumbled 4 percent against the dollar in the first hour of intraday trade on Friday, dropping as low as 264 against the greenback as markets are ‘enjoying’ the new free float regime.
This is the second consecutive intraday drop as it dropped by Rs.9 in the morning, in a slump that may persuade the International Monetary Fund to resume lending to the country.
On Thursday, the PKR lost Rs. 24.54 before closing at 255.43.
In the open market, the domestic currency has dived by around 8 percent to a record low of 271 per US dollar compared with Thursday’s highs of 251-258 per US dollar.
Our market sources have now confirmed that the local currency will continue to be at the mercy of market forces today, following a broad consensus established in the previous two trading sessions that neither the SBP nor exchange companies will be able to control dollar movements against the PKR.
Leading up to this week’s chaotic slump, financial experts had earlier predicted that the domestic currency would fall to Rs. 250-270 per dollar before the IMF’s $7 billion loan program resumed. The global lender had requested that the government allow market forces, primarily commercial banks, to determine the exchange rate, which was one of four major conditions for restarting the stalled program. At 11 AM today, the greenback was valued at 265.
Pakistan is anxious for external financing as it faces an acute balance of payments crisis, with less than three weeks’ worth of import cover in its foreign exchange reserves, which fell $923 million to $3.68 billion in the latest data.
In 2019, Pakistan received a $6 billion IMF bailout. It was topped up with another $1 billion last year to assist Pakistan in the aftermath of devastating floods, but disbursements were suspended in November due to Pakistan’s failure to make more progress on fiscal consolidation. The ongoing PKR slump is a remedy to that fallout.
The local unit will likely depreciate significantly as part of the preconditions for reviving the IMF bailout. Given the free-float model, no one can predict how low the currency may fall.
This is an intraday market update.
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