Pakistani rupee on Thursday plunged drastically to hit an all-time low against the US dollar amid political economic uncertainty due to delay in International Monetary Fund (IMF) funds.
The rupee depreciated 6.66 per cent or 18.98 to 285.09 (77.68 against the dirham) in interbank market while it crossed 290-barrier against the greenback (79.01 versus the dirham) for the first time and moved closer to hit 300-mark. It closed at 266.11 against the greenback (72.50 versus the dirham) a day earlier, according to the State Bank of Pakistan (SBP) data.
Analysts and market experts termed the rupee depreciation part of a market correction as IMF demanded to end the significant gap in rates between the open and inter-bank market. Investor sentiment was also dented amid economic uncertainty due to delay in the IMF funds, they said.
“The current rate is too high and shouldn't have risen that much,” Zafar Paracha, secretary general of the Exchange Companies Association of Pakistan, said. He attributed the decline to delay in the agreement with IMF and huge gap between interbank and open market rates.
On Tuesday, Moody's downgraded Pakistan’s local and foreign currency issue and senior unsecured debt ratings to Caa3 from Caa1.
Interest rate at record high
SBP, the central bank, on Thursday raised its key interest rate by 300 basis points to meet the IMF condition to unlock its $6.5 billion facility. As per the ninth review of a previous deal with the international lender, the IMF is due to release a tranche of over $1 billion to Pakistan.
The policy rate now stands at 20 per cent, its highest level since October 1996. In its last policy meeting in January the bank raised the rate by 100bps to 17 per cent. It has now raised rates by a total of 1025 bps since January 2022.
“The MPC noted that the recent fiscal adjustments and exchange rate depreciation have led to a significant deterioration in the near-term inflation outlook and a further upward drift in inflation expectations, as reflected in the latest wave of surveys,” according to the SBP statement.
The committee also decided to hold its next meeting on April 4, 2023. It was previously scheduled for April 27, 2023.
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