The possibility of Pakistan taking a loan from the International Monetary Fund (IMF) has been taken negatively in the currency market with Pakistani Rupee losing its value in the open market vs US Dollar (USD), however, it is stable in the interbank market. In the open market USD reached Rs. 128 on Monday.
Pakistan and IMF’s talks took place in Islamabad last Thursday. These talks were part of the routine Article IV discussions. But as Pakistan is in need of external funding with widening current-account and fiscal deficits, the local currency market was in a panic and Rupee started declining.
After this meeting, the State Bank of Pakistan (SBP) announced its Monetary Policy Statement (MPS) and increased the policy rate by 100 basis points, with the rate reaching 8.50 percent. SBP painted a very gloomy picture of the country’s economy. The bank forecasted increasing inflation and a decline in Gross Domestic Production (GDP).
These two elements are being reflected in the currency market with the Rupee declining last week and continuing to decline during the first working day of October 2018. On Monday, one USD’s value increased by Rs. 1, selling at Rs. 128 per dollar. From last week till today, Rupee lost its value by Rs. 2.80. In a week, Rupee’s value declined by 2.18 percent.
During this period, the interbank market looked stable and one dollar was traded at Rs.124.35 to 124.50. Interbank is the official market and reflects the import-export exchange rate.
President of the Forex Market Association, Malik Bostan, told ProPakistani that the market is facing volatility due to fears in upcoming devaluation. On Friday, September 28, Rupee lost its value by Rs. 0.50 and on Monday, October 1, it lost Rs. 1 on the open market. People started buying USD after Pakistan started talks with the IMF.
“There is a panic in the open market. People are buying dollars in large numbers. The government or SBP have to issue a statement to cool down the market, the people must not buy USD in a panic.” Bostan added.
Pakistan’s foreign currency reserves are on a decline, with the widening trade deficit also being a key factor in Rupee’s decline in the open market.