Cash-strapped Pakistan's currency depreciated to its lowest against the US dollar on Friday in the interbank and open market and closed at Rs 262.6.
At one stage the currency depreciated to Rs 265 in the open market and Rs 266 in the interbank before making a slight recovery by the end of the day.
According to the State Bank of Pakistan, when the market opened on Friday the currency fell by Rs 7.17 or 2.73 per cent from Thursday’s close.
The Pakistani rupee's value has devalued by Rs 34 since Thursday in the interbank, the largest depreciation in both absolute and percentage terms since the new exchange rate system was introduced in 1999.
The Pakistani rupee has depreciated sharply after the government removed an unofficial cap on the USD-PKR exchange rate to revive the stalled International Monetary Fund (IMF) loan programme.
The government decision came on Thursday after the exchange companies announced the removal of a self-imposed rate cap in the open market.
The country needs to complete the ninth review of a USD 7 billion IMF programme that would not only lead to a disbursement of USD 1.2 billion but also unlock inflows from friendly countries and other multilateral lenders.
The IMF conditions include a market-based dollar-rupee exchange parity and high-interest rate and imposition of a 17 per cent general sales tax on diesel and petrol within a week.
The first two conditions have already been met.
According to data given by the Exchange Companies Association of Pakistan (Ecap), a substantial amount of remittances started flowing into the country through official channels on Friday.
A financial analyst, Hameed Khokar with CX investments, expected the flow of remittances to increase in the coming days and felt it would cross USD 2.5 billion per month again to gradually reach close to USD 3 billion in the coming months.
He said that remittances from exports will also improve in the next few months.
Khokar said the biggest challenge facing the government was to support the foreign reserves and improve the currency market so that currency parity is stabilised and import goods are stuck at the port.
More than 9,000 containers are also stuck at the Karachi ports waiting to be paid for clearance of dues including those having essential commodities, petroleum products, LNG and soybean among others.
Other financial analysts have also supported the government’s decision to remove the cap on the dollar and felt if this had been done earlier, the country would not have had to pay a huge inflation cost in the coming months and lose USD 6 billion on various counts.
Director of financial data and analytics portal Mettis Global, Saad bin Naseer also said that after the removal of the cap remittance inflows including export proceeds had again started coming again through the official channels.
The Ecap General Secretary Zafar Paracha said that while the central bank had assured that exchange companies would be supplied dollars, they were yet to receive them.
If supply was established and the government’s “complex” policies were corrected, the rupee’s devaluation may be stopped, he added.
Meanwhile, the foreign exchange reserves of the central bank continued to slide and hit a new nine-year low of USD 3.678 billion during the week ended on January 20.
The SBP on Thursday said that its forex holdings decreased by USD 923 million during the week due to external debt repayments.
But financial analysts remain confident that with Prime Minister Shahbaz Sharif confirming the government would implement all of the IMF conditions for the revival of its programme the economic situation would improve.
Prime Minister Shahbaz Sharif expressed confidence on Friday that the IMF would release the funds by next month.
He said the government was in talks with the IMF to resolve the issue as soon as possible.