Pakistani rupee nosedived Rs9.11 (or 3.8%) to all-time low at Rs240 against the US dollar in the interbank market on Thursday.
The latest fall comes as the government ended its control over the rupee-dollar exchange rate as part of the International Monetary Fund (IMF) condition.
The local currency had closed at Rs230.89 against the greenback a day earlier, according to the State Bank of Pakistan (SBP). However, the rupee devaluation helped the Pakistan Stock Exchange (PSX) rise by 1,200 points during the day.
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Financial experts have projected that the domestic currency may lose to Rs250-260 against the greenback ahead of the resumption of IMF’s $7 billion loan programme.
Earlier, the Fund had asked the government to let the market forces (mostly commercial banks) determine the exchange rate. This was among four major conditions to resume the stalled IMF programme.
The rupee had remained under government control since Ishaq Dar took charge as the finance minister in late September 2022. At that time, Dar had said that the fair value of the rupee stands in the range of Rs180-200/USD.
The finance minister also believed market forces had artificially undervalued local currency to Rs240/USD first time in July 2022 and the second time in September 2022.
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Accordingly, the central bank conducted a probe against banks and found 13 banks guilty. Earlier this month, the SBP said that it will take action against the banks in the coming days.
Meanwhile, on Wednesday, Pakistan assured the United States that it remained committed to the IMF programme, as the country’s reserves slipped to just half a month of import cover after making a fresh debt repayment of $500 million.
The IMF has asked Pakistan to implement a market-based exchange rate, lift restrictions on imports, increase taxes and electricity prices. However, so far, the government has not yet taken any of these measures and is waiting for a formal engagement with the global lender before kicking in these actions.
Pakistan made a payment of $500 million to a Chinese commercial bank that has now pulled down the reserves to a level that cannot be described as comfortable by any standards.