The hopeless downward spiral

The inevitable has happened. On August 24, the Pakistani rupee fell below 300 to a US dollar in the interbank market. In less than two months of this fiscal year (between July 1 and August 24), the rupee has lost about five per cent value against the mighty greenback. The dollar has been on the rise since the lifting of import restrictions from the beginning of this fiscal year on July 1 at the insistence of the International Monetary Fund (IMF). Uncertainty regarding the timing of general elections in the country is high. The ongoing political/judicial/constitutional crisis is growing intense day by day. That is why a trend of dollarisation of assets seems to be in the works. Purely speculative dollar buying from the open market is also in progress. On August 24, the rupee was seen trading in the band of 315-317 in the open market. The rapid fall in the rupee’s value has eroded business confidence. Wholesalers of several imported items, most notably solar panels, have started revising prices on a daily and hourly basis, making it difficult for retailers and end-users to absorb quick price shocks. This is contracting demand on the one hand and pushing up inflation on the other.