Rupee in free fall as buyers make beeline for foreign currencies

KARACHI: The rupee’s free fall and the dollar’s seemingly unstoppable rise have made the former almost irrelevant to the economy as queues for purchasing the greenback are growing by the day.

According to currency dealers, the finance minister’s statement that the situation was worse than she had realised, sent waves of shocks in the exchange rate market.

Malik Bostan, President of the Forex Association, said the government should work out a strategy to check the rupee’s fall and the dollar’s rise.

However, the dollar kept up its unrelenting march towards freedom from control of the market, the State Bank and the government, on Thursday.

The dollar went up by Rs1.09 to record Rs305.54 in interbank on Thursday while the open market price was quoted as Rs323 — an increase of Rs3.5 in one day.

The open market at one time went beyond Rs326 while the grey market sold dollar for Rs335.

Along with dollars, the average buyer is also opting for other major currencies like the euro, pound sterling and riyal to protect their savings. It is indicative of a waning trust in the local currency — an ominous sign for the economy.

“Dollar is available in the open market. We provide dollars at the quoted rate, but we need complete documents and this is the reason that many people go to other currency dealers and pay higher rate for dollars,” said Zafar Paracha, General Secretary of Exchange Companies Association of Pakistan.

He said the ECAP can’t control every branch of an exchange company across the country while the prices are also different in different cities. Currency dealers in both open and inter-bank markets were clueless about any remedy to stop or slow this free fall of PKR.

The escalating agitation over electricity prices by trade and industry, as well as the public, has further aggravated the situation.

Currency experts said six billion dollars were needed for debt servicing while inflows are not in the pipeline.

The State Bank reported that it paid $81 million as debt servicing during the week ended on Aug 25 _ bringing foreign exchange reserves down to $7.85 bn.

The State Bank is walking on a tightrope as it has been trying to slow down outflow of dollars from the country. The fiscal year FY23 has seen a major change as the outflow of profits and dividends was just $331m, against $1.68bn in the previous fiscal year.

The country’s foreign exchange reserves fell to $13.17bn, including $5.3bn with commercial banks. Pakistan needs to build up its reserves before the IMF review regarding the Standby Arrangement of $3bn, expected in November.

The State Bank is required to improve reserves up to $10bn before the IMF review.