KARACHI: The US dollar appreciated to an all-time high against the rupee, rising by 1.8 per cent in the interbank market on Wednesday, apparently after the political situation deteriorated further.

The State Bank reported the dollar price at Rs290.22 in the interbank market against the price of Rs284.87 a day before, an increase of Rs5.37, or 1.8pc.

This was the highest dollar price in the banking market.

The previous highest rate was around Rs288, observed earlier this year.

However, the reason for the sudden jump in dollar prices in the banking market was not acceptable to many stakeholders, who accused the banks of again using the deepening political crisis to make money “unlawfully”.

Earlier, the banks were held responsible for artificially increasing the dollar rates to earn profits, and the State Bank had announced that it would penalise these banks.

The uncertainty on the political front deepened after the arrest of PTI Chairman Imran Khan on Tuesday, leading to nationwide protests.

However, this uncertainty does not directly and immediately impact the imports and exports, but the interbank market reacted to benefit from the situation.

“Neither imports increased nor exports decreased after the arrest of Imran Khan,” said Zafar Paracha, general secretary of the Exchange Companies Association of Pakistan, adding that the jump in the dollar rate was simply profit-making by banks out of this situation.

However, bankers said the dollar rose after demand suddenly increased from importers despite tight controls of the State Bank.

“Since the interbank market is functioning without interference on prices, the latest increase of over Rs5 per dollar is the response of a free-market mechanism,” said Atif Ahmed, a currency dealer in the interbank market.

He said the State Bank influences only to stop the outflow of dollars from the country, which means the opening of letters of credit (LCs) for imports was not free.

However, some senior bankers attributed the dollar’s rise to some other reasons. They said the poor foreign exchange reserves were already a threat to the exchange rate, while the IMF’s delay in releasing the tranche of $1.1 billion made the situation worse for the country.

“Pakistan’s default chances have increased in the next fiscal year, when the country needs over $30bn for debt servicing,” a senior banker said.

The State Bank has about $4.5bn in foreign exchange reserves, barely enough to cover one month’s of imports. Exports are on the decline, while foreign direct investment also dropped during the first nine months of the current fiscal year.

The open market reported the dollar rate at Rs297, around Rs8 higher than the previous day. Currency dealers said it was the reflection of the interbank market, where the prices escalated by Rs5.37.

Analysts and researchers said the exchange would further deteriorate in the coming weeks since the worsening political situation had provided valid reasons for the donors like the IMF to stay away until and unless the situation calms down.

They said Pakistan would not get help from the IMF and other friendly countries, which saved it from default during the current fiscal year.

Published in Dawn, May 11th, 2023