On Tuesday, the Pakistani rupee gained Rs3.32 against the US dollar in the interbank market. According to the Forex Association of Pakistan, the local currency was trading at Rs233.7 per dollar at 9:37 a.m., up 1.4% from yesterday’s closing at Rs237.02 (FAP).
The news about Ishaq Dar assuming the office of Finance Minister for the fourth time has boosted the rupee, but the fundamental weakness persists. Larger economies are engaging in a reverse currency war to strengthen their currencies against robust dollar.
قائد مسلم لیگ ن محمد نوازشریف اور وزیراعظم شہباز شریف نے مجھے کہا ہے کہ میں وزیرخزانہ کی ذمہ داری قبول کروں تو انشاءاللہ پاکستان جس معاشی بھنور میں پھنسا ہے اسے اس سے نکالنے کی بھرپور کوش کریں گے.@MIshaqDar50 pic.twitter.com/mHfJTwQib9
— PMLN (@pmln_org) September 26, 2022
Earlier, Dawn claimed that a number of currency dealers welcomed Dar’s appointment as finance minister, hoping that he would lower dollar rates as he has in the past. The rupee-dollar parity was around 100 during Dar’s last tenure as finance minister.
However, economists and exporters believe Dar would be unable to lower the dollar this time for two reasons: the International Monetary Fund (IMF) will not accept the maintenance of an artificial exchange rate, and an appreciation of the rupee in the current situation will severely harm exports.
Between 2013 to 2017, it has been believed that Ishaq Dar continued to pump about 7 to 8 billion dollars in the market to keep the dollar value artificially stable in the range of 100 to 105 to give a misleading vibrant picture of the economy.
Considering the role of central bank during the period of rapid exchange rate depreciation, SBP could not stabilize the exchange rate due to its dwindling foreign exchange reserves, largely affected by internal and external shocks.
According to Exchange Companies Association of Pakistan (Ecap) General Secretary Zafar Paracha, assurances of funds from the World Bank and Asian Development Bank, among other foreign lenders, following the floods, as well as a drop in global oil prices, led to expectations of a lower import bill, which helped the rupee recover.
Political instability has put economic reforms at the backseat and encouraged speculative behavior. The State Bank of Pakistan’s tough stance against those engaging in speculation also caused the rupee’s value to climb in the interbank market.