The unending slide of the rupee: An explainer

The IMF is on board, yet the rupee continues to decline. Previous assumptions pointed towards a prevailing lack of confidence in economic sustainability as the primary driver behind the consistent and steep deterioration in the rupee-dollar exchange rate. The expectation was that after the Stand-by Arrangement (SBA) with the IMF, the rupee-dollar exchange rate situation would improve. This did happen, but it was short-lived. Despite significant support from the IMF, the value of the rupee continues to decrease. Most recently, the PKR traded at Rs305 a dollar on August 31 in the interbank, reaching a new low. In the open market — which continues to see a shortage of the greenback — the dollar is trading around Rs315-320. This has prompted valid concerns regarding the local currency’s stability in the foreseeable future. The situation has left stakeholders baffled because despite taking all the required measures to manage the declining value of the rupee, the currency continues to weaken. The market is now left wondering if the substantial backing of the IMF cannot bolster the rupee, who or what can. This panic is increasing pressure on the local currency, while businesses, investors and global markets are losing confidence in it. Additionally, this loss of value is intensifying the inflation predicament.