The rupee goes on falling

• Is there a target level?

The government seems unable to arrest the fall of the rupee. It hit Rs163 to the dollar on Wednesday, a precipitate loss of Rs6 that came after remaining at Rs157 for about a week in the interbank market. Even that was a high level, for it had been at about Rs121 last May, so the decline since then was about 35 percent. This continuous fall has covered an IMF agreement which has not yet been approved by the IMF Board. The agreement was followed by the change of the State Bank Governor, the new appointee being the former IMF Country head in Egypt. That new Governor said that the free float could not be introduced in Pakistan, and also met Prime Minister Imran Khan the day of the precipitate fall.

There was some pressure on the forex market, because there was some recent repayment of debt, which meant that the State Bank had reason to pick up dollars from the open market, but that was not the reason for the fall. The fact that commercial banks had bought heavily indicated that speculative pressure was building up on the rupee. That is not a good sign, especially when forex reserves are small enough to prevent the State Bank from intervening in the market, which is the so-called managed float.
The State Bank does have much room to manoeuvre, because the current account deficit in the financial year closing at the end of the month would be $13 billion, as opposed to $19.9 billion the year before. However, all the money obtained from friendly countries, like China, the UAE and Saudi Arabia, cannot be spent by flooding the market with dollars to keep the rupee stable. The government may have agreed with the IMF to a rate for the dollar, but the danger which seems to threaten is that it may slide below that rate because of speculation. The only way to overcome the trade and current account deficits would be to increase exports. So far, devaluing the rupee has not done the trick, with the associated cost of making prices of imported goods like fuel and medicines skyrocketing. It is more than time for the government to look for out-of-the-box solutions. Such solutions do not lie with either the IMF or its nominees.