Finance: What after the rupee’s fall?

Foreign exchange reserves of the State Bank of Pakistan (SBP) plunged to $3.678 billion on January 20 from $4.601bn due to external debt repayments. At this level, the reserves provide imports cover of three weeks against a standard minimum of three months. The SBP reported a new level of the forex reserves on January 26 and simultaneously removed the cap on the official exchange rate. Consequently, the rupee nosedived Rs255.43 to a US dollar in the interbank market from 230.89 a day earlier. Then on January 27, the central bank let the rupee fall further — this time to 262.6 to a dollar. This unprecedented 13.7 per cent rupee depreciation within two days, undertaken to meet a key condition for the resumption of a stalled International Monetary Fund (IMF) loan, is expected to bridge the gap between the interbank and open market exchange rates. The expected increase in remittances and export dollars will ease the pressure on the forex reserves, more so because the rise in the dollar value will help contain imports. This comes at a time when the SBP has promised to start easing restrictions on import payments as 5,700 containers of imported food, medicines and industrial raw materials remain waiting for clearance at Karachi Port.