Rupee’s plunge fuelling inflation, economic concerns

The consistent devaluation of the rupee is not only causing inflation but is also compelling the central bank to raise interest rates to mitigate the repercussions of uncontrolled depreciation of the local currency, according to bankers who manage exchange rates and imports. The State Bank of Pakistan (SBP) reported that the dollar appreciated by Rs1.40 to reach Rs304.45 in the inter-bank on Wednesday. “The market is not in control of anyone. The steep devaluation will continue and even cross the limit given by the IMF,” a senior banker said, adding that nobody knows what is next for the exchange rate. Under the Standby Arrangement (SBA), the IMF will provide $3 billion in three instalments over nine months and is willing to witness a 20pc devaluation of PKR against the US dollar in FY24. However, in less than two months of the current fiscal year, the PKR has devalued by 10.5pc, or Rs29 per dollar. On July 4, when the IMF approved the SBA, the dollar in the inter-bank market was traded at Rs275.44, which reached Rs304.45 on Wednesday.