Pakistani rupee depreciates against US dollar

Hamza Shahbaz's promises of free electricity seem to trigger rupee depreciation

Around mid-day on Tuesday, the Pakistani rupee depreciated against the US dollar in the inter-bank market from Rs2.04 to Rs207.07.

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This occurred after Punjab Chief Minister Hamza Shahbaz’s promise of free electricity for users of up to 100 units a month after July’s election. As this decision was in contradiction to the International Monetary Fund’s (IMF) loan programme, it inevitably raised concerns.

Resultantly, rumours claimed that the recovery trend would not last as there would be problems with the $6 billion loan programme.

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However, yesterday, Finance Minister Miftah Ismail claimed that the IMF programme was not going to be suspended and that the Extended Fund Facility (EFF) programme was functioning properly.

On Monday, central bank data showed that the rupee was at a high of Rs204.56 against the dollar. It was expected to strengthen and to even recover below Rs200 after the receipt of $2 billion from the IMF by the end of July.

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In mid-June, the rupee was at a low at Rs211.93. At the same time, foreign exchange reserves had fallen to extremely low levels with just a five-week import cover at $8.2 billion. There were even fears of resumption of the IMF loan programme being delayed.

However, after China lent Pakistan $2.3 billion, reserves began to see improvement, recovering to more than $10 billion last week.

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