Cap removal

The cap on the exchange rate has gone. The rupee has thus descended to historic lows — at 255.43 to a dollar in the interbank market — as anticipated. The artificial measures adopted by the State Bank — understandably at the behest of Ishaq Dar since his return as Finance Minister around four months back — to contain the dollar from winging high and high have rather proved counterproductive. It created a grey market where the greenback was being traded at 30 to 40 rupees more than the inter-bank rate. Because of this illegal market, Pakistan lost nearly $1.8 billion worth of remittances from our foreign workforce. Miftah Ismail, by the way, stands vindicated and has all the right to blurt out in the defence of his policies and launch a counter-attack on his senior party colleague.

The Rs24.54 or 9.61% decline in the interbank exchange rate on Monday — as against the rate at the close of trading a day ago when the unofficial cap was removed — was the largest single-day fall in both absolute and percentage terms since the introduction of the new exchange rate system in 1999, according to market sources. In the open market too, the dollar was being traded around Rs255. Thus, the Rs15 or so difference in the inter-bank and open markets rates in recent months has also been nearly bridged.

Even though the cap on exchange rate has been removed on the IMF pressure, that indeed is
the only advisable action to somehow stead the dwindling boat of the economy at least in the near term. It is, however, bound to serve a lethal blow to the already hard-pressed common man. With such a big jump in the dollar value, the rate of inflation — already hovering around 30% — will skyrocket. So sadly, it’s time for the poor masses to brace themselves for further belt-tightening.