A day after crushing the local currency amid a standoff with the International Monetary Fund (IMF) and a downgrade by Moody’s in its most recent ratings, the US dollar decimated the Pakistani rupee to an all-time low in the interbank market on Thursday.
According to foreign exchange dealers, the dollar’s value against the rupee increased dramatically by a massive margin of Rs 18.89 and was currently trading at a record level of Rs 285 in the interbank market.
Within three days, the US dollar gained Rs25.08 against the local currency.
Interbank closing #ExchangeRate for todayhttps://t.co/yixJmUnrgF pic.twitter.com/PWg8EoDAgM
— SBP (@StateBank_Pak) March 1, 2023
Another factor that came down heavily on the money market was the rampant price spiral. Inflation in crisis-racked Pakistan has jumped 31.5 percent according to government data, as Islamabad continued to stare down IMF negotiators withholding a crucial bailout.
Year-on-year inflation for February is the highest in decades, while transport and perishable food costs rose by around half as a cost-of-living crisis continues to bite.
Years of financial mismanagement and political instability have pushed Pakistan’s economy to the brink of collapse, exacerbated by a global energy crisis and devastating floods that submerged a third of the country in 2022.
The country’s foreign reserves have dwindled to $3.25 billion, or about three weeks’ worth of imports, paralysing supply chains and causing widespread factory closures.
Prime Minister Shehbaz Sharif is attempting to revive the second installment of a $6.5 billion loan agreement that was drafted with the International Monetary Fund in 2019. However, the international lender is requiring severe reforms, such as tax increases and reductions in subsidies, which is likely to enrage voters ahead of a general election that must take place no later than October.
IMF negotiators traveled to Pakistan last month for a 10-day visit, but they left without reaching an agreement and returned to the US.
Although Islamabad insisted that a deal between the two parties was imminent, the loan has yet to be released.
Analysts predict that inflation will rise even after an agreement is reached.