August 25, 2023 (MLN): The Pakistani rupee (PKR) is facing a double challenge against the US Dollar – a continuous depreciation in the interbank market and a growing gap with the open market rate.
The interbank rate has breached the 300 mark, a psychological barrier, losing 15.9 rupees or 5.28% in the current fiscal year, while seeing a depreciation of 75 rupees or 24.88% in the current calendar year.
It is worth noting that the depreciation of the local unit from 200 to 300 level against the USD occurred within a 15-month time span.
Adding to the complexity is the open market rate which currently hovers around 315/318 per USD.
This takes the gap between the interbank and open market rate to 4.51%, and has exceeded the recommended 1.25% threshold set by the International Monetary Fund (IMF) for the last 15 consecutive days.
The interbank market has a severe shortage of dollars, however, they are readily available in the open market at a black (market) price.
There needs to be a sound strategy to eliminate the black market.
Meanwhile, the continuous PKR depreciation in the interbank stems from several factors. A notable factor weighing down the Rupee is the International Monetary Fund (IMF)’s condition for a more market-determined exchange rate to secure financial aid.
This has limited the government's ability to control the rupee through trade restrictions.
As a result, import restrictions have been lifted, leading to an increased demand for dollars and subsequently weakening the rupee.
Additionally, Pakistan's dependence on imported oil exposes the country to the constant rise of international oil prices in the past few weeks, which also affects PKR.
