Dollar plummets against PKR for seven consecutive days

KARACHI: The US dollar plummeted against the Pakistan Rupee (PKR) for the last seven consecutive trading sessions on Saturday.

The foreign currency is losing value to the local currency since sharp increase in policy rate announced on April 07, 2022.

The exchange rate ended at Rs181.55 to the dollar on Saturday as compared with previous day’s closing of Rs181.58 in the interbank foreign exchange market.

The local currency has made sharp recovery against the dollar since the significant raise was announced in the policy rate on April 07, 2022.

The State Bank of Pakistan (SBP) announced an unprecedented increase in policy rate by 250 basis points to 12.25 per cent. The massive rise in interest rate surprised the market and trade and industry are in state of shock. The massive hike in policy rate also resulted in a sudden decline in demand for dollar.

This is the reason behind five consecutive gain in rupee value during past five trading sessions.

The rupee hit all-time low of Rs188.18 to the dollar on April 07, 2022. Since then the rupee recovered Rs6.63 against the dollar during past six straight trading sessions.

The SBP noted that the recent developments necessitated a strong and proactive policy response.

Accordingly, the Monetary Policy Committee (MPC) decided at its emergency meeting today, to raise the policy rate by 250 basis points to 12.25 percent.

This increases forward-looking real interest rates (defined as the policy rate less expected inflation) to mildly positive territory. The MPC was of the view that this action would help to safeguard external and price stability.

The MPC also noted that SBP is in the process of taking further actions to reduce pressures on inflation and the current account, namely an increase in the interest rate on the export refinance scheme (EFS) and widening the set of import items subject to cash margin requirements. These items are mostly finished goods including luxury items and exclude raw materials.

The announcement of these measures is expected soon and will complement the action taken by the MPC on interest rates.