KARACHI, Pakistan The Pakistani rupee fell by 1.2 per cent on Wednesday after foreign exchange companies removed a cap on the currency, saying it was creating artificial distortions in the market as the South Asian country struggles to escape a deepening economic crisis.
Pakistan is battling to meet its external financing obligations in the face of dwindling foreign exchange reserves that are barely enough to cover a month of imports. It is also be beset by decades-high inflation which policymakers are trying to curb with massive interest rate hikes.
The exchange companies association of Pakistan said in a statement that the rupee was bid at 240.60 to the U.S. dollar and offered at 243 in early trade, compared with a range of 237.75 240 at the close on Tuesday.
The rupee has depreciated 11.23 per cent against the dollar in the current fiscal year 2022 -- 23, which ends on June 30.
The exchange association said late on Tuesday it was lifting the currency's cap in the interest of the country.
Secretary General Zafar Paracha said that level is 255 256 rupees to the dollar because of the fact that we have decided to bring the exchange rate at par what we are providing to the banks against credit cards.
Before the cap on the rupee was removed, markets looked at three different rates to assess its value - the state bank's official rate, the black market rate, and the foreign exchange companies' official rate.
The bank rate for today has not been disclosed, but we think the dollar rate could fall by up to 5 per cent in a few days, said Mohammed Sohail, chief executive officer at brokerage Topline Securities.
According to Sohail, the removal of the cap may be a step towards liberalising the exchange market, which will help the country unlock stalled IMF funding.
The International Monetary Fund has yet to approve its ninth review to release $1.1 billion, which was originally due to be disbursed in November last year, but has been held up due to fiscal consolidation issues.
The IMF has called for fiscal steps to reduce the budget deficit, slashing energy sector debt, levying more taxes to plug the revenue shortfall, and a market-based exchange rate as conditions for releasing the funding.
The prime minister of Pakistan, Shehbaz Sharif, said on Tuesday that his country was willing to discuss all of the demands of the International Monetary Fund.