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Distress over unchecked increase in dollar rate

Trade and industry stakeholders have warned that an unchecked increase in dollar rate will increase the cost of production, affecting the manufacturing as well as agriculture sectors badly, because the country has to import fertilizers, food items, oil, machinery and industrial raw material.

The financial experts and economists said the rupee has been collapsing in a superficial devaluation by the Central Bank itself. They said though the weaker rupee benefits the exporters by giving them more rupees per dollar but this benefit is countered by the costly imported inputs of manufacturing sector including textiles thus consuming the financial advantage of a weaker rupee.

Forex Association of Pakistan (FAP) was of the view that government has devalued the rupee three times, as the rupee was at Rs98 to the dollar when government came to power. A flexible Pakistani rupee would allow in narrowing the current trade deficit. In order to control the volatile exchange rate in open currency market, Forex Association of Pakistan (FAP) has decided to fix the US dollar rate on a daily basis. A monitoring committee is also being constituted to ensure the implementation on FAP rates and for close monitoring of money market. It has been decided that exchange companies will be penalized for non compliance of FAP rates.

The present fluctuation was very high, creating more alarm in the market. Lahore Chamber of Commerce & Industry (LCCI) former president and Punjab Thermal Power Company Limited chairman expressed grave concern over the declining value of Pak rupee against greenback, urging the government to stop this trend as it may give a new wave of price hike as well as increases the import bill for the country. He said that increase in value of the US dollar would enhance the prices of petroleum products thus making electricity more expensive besides increasing the cost of different raw material for the local industry. The LCCI former president said that rapid devaluation of rupee will damage the economic activity of the country besides frightening international investors.

Lahore Chamber of Commerce & Industry (LCCI) urged the State Bank of Pakistan (SBP) to control rapid surge in dollar price through strict measures; otherwise, Pak rupee devaluation would give a big blow to the economy. The office-bearers said that if the greenback continued its upward flight, it would certainly inflate import bill besides lowering the competitiveness of Pakistan’s business and industry.

Therefore, government should get quickly into action to arrest this dangerous trend.

The LCCI Acting President suggested the government should immediately review its energy plan, introduce institutional reforms and curtail non-development expenditures.

The former chairman of Pakistan Poultry Association said that if the government was trying to support the declining exports by this mean it would not work. He said that imports would go costlier. At the same time increase in raw materials for industry will drop out products from competition at the international level.

In this context State Bank of Pakistan should control this embarrassment without wasting a single moment. Devaluation would lead to lower industrial productivity, increase debts, harm already struggling exports, inflation rise, reducing the purchasing power of the masses that would pose serious problems for the economy.

The SBP intends to let the market decide the ‘true’ value of the rupee. The SBP is of the view that this market-driven adjustment in the exchange rate will contain the imbalance in the external account and sustain the higher growth trajectory.

The policy of controlling rupee artificially is difficult even for massive trade-surplus countries. The overvalued exchange rate discouraged exports, encouraged imports and kept the rupee cost of foreign debt servicing high.

Irfan Yusuf, regional chairman of Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said that during 2016, the Central Bank kept the rupee stable artificially compared to 1.2 percent and 0.4 percent depreciation of Indian and Sri Lankan rupee, respectively, against US dollar. He, however, welcomed the State Bank of Pakistan stance of market-based devaluation, which was long-awaited.

The value of the US dollar hit a high of Rs115.50 in interbank trading, with currency dealers suspecting the government’s commitments to foreign monetary bodies being the cause behind the sudden rise. The value of greenback also increased by Rs5.40 in the open market.


The State Bank of Pakistan (SBP) held rising demand for dollars responsible for the rise in the dollar, adding that it is closely monitoring the situation, but forex dealers seemed reluctant to accept this line of reasoning.

Exchange Companies Association said that the dollar was being sold and purchase at Rs116 and Rs115 respectively. The foreign loans, the government’s unannounced commitments to international bodies and corruption are responsible for the lower value of the rupee.

Speaking about corruption with respect to fluctuation in the dollar-rupee exchange rate, alleged that those with advance knowledge of the changing value were able to earn money off the adjusted rates.

The drop in the value of the rupee, would pave the way for inflation, lesser foreign investment in the country and the use of illegal means for transferring money.

The government should withdraw the increase in the dollar rate and authorities take traders into confidence before making such decisions.

Knowing the fact that Pakistan is set to be placed on the Financial Action Task Force’s grey list in June, it is not the right time to devalue the rupee.

Latest rupee depreciates to Rs118 against US dollar amid economic strains. The country’s external balance of payments position is under pressure due to the large import bill. This has resulted in a widening of current account deficit, which has translated into a demand-supply gap of foreign exchange. The exchange rate movements will continue to reflect the demand-supply conditions in the foreign exchange market.

SBP will continue to closely monitor the foreign exchange markets; and will intervene to curb the emergence of speculative pressures. This appears to be currency devaluation by SBP, traders said, the second since December last year.

Despite a nearly 5 per cent depreciation of the rupee in December, multiple signals indicated that pressure on the currency would continue.

An IMF report released earlier this month also stressed on the need for “greater exchange rate flexibility on a more permanent basis” to preserve external buffers and international competitiveness.

A United Nations report in early-December warned Pakistan’s policy of keeping the rupee stable could become untenable if the US dollar appreciates against other world currencies and possibly erode the country’s foreign exchange reserves.

World Bank analysis outlined that there was a significant co-relation between the Real Effective Exchange Rate (REER) and exports in the medium to long-term.

State Bank of Pakistan Governor Tariq Bajwa and Adviser to the Prime Minister on Finance, Revenue and Economic Affairs Miftah Ismail assured currency traders for their support to bring down dollar rates in the open market. The recent sharp increase in the dollar prices appeared as a burning issue for the economic managers as well as for importers who buy dollars from open markets.

The exchange rate in the banking market remained stable apparently due to strict vigilance and management by the central bank. Latest sad news reveals that reserves fall by half a billion dollar.

The foreign exchange reserves of the State Bank drastically fell by $463 million within a week ended on April 20, 2018. The reserves of the State Bank has been falling while the current account deficit has kept increasing its size as it reached $12 billion at the end of third quarter. The holdings of the SBP fell to $10.917 billion while the overall reserves of the country stood at $17.130 billion. The holdings of the commercial banks were $6.213 billion.

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