Free fall of rupee

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THE rupee continues to lose ground against the dollar and on Monday it hit a new low of Rs 229.88 in the interbank.

Between 07 April and 22 July, the rupee has lost 21.3pc value against the US dollar both due to yawning trade deficit and the growing political instability and the resultant uncertainty.

This free fall of the rupee must be stopped to avoid collapse of the economy. Besides raising the debt to an unsustainable level, the fall in value of local currency lifts the cost of production which eventually leads to an additional price burden on the end consumers.

If the local currency failed to gain stability, the country would remain in the grip of skyrocketing inflation and surging commodity prices of products ranging from automobiles to food items.

Talking to Radio Pakistan the other day, Minister for Finance Miftah Ismail expressed the confidence that the pressure on rupee will reduce in the next week as the government has succeeded in reducing imports.

He said Pakistan currently stands in a position where its new imports are less than exports and remittances.

However, economic experts on the other hand predict that the local currency will continue to lose ground as no practical measures are being taken to stop the dollar’s flight.

Whilst political uncertainty has also contributed to the devaluation of rupee, the relevant departments, especially the State Bank of Pakistan, have to intervene to put a stop to devaluation and rather reverse its trend.

We understand that the central bank, at the moment, does not have sufficient reserves to pump them into the market, however, administrative measures need to be taken to at least check the smuggling of dollars to neighbouring Afghanistan.

Additionally, guidelines should be issued to ensure exporters convert their dollar earnings to rupee immediately after receiving payments.

Delay on their part to maximize their rupee earnings is also wreaking havoc on the exchange rate, causing a significant shortage of the greenback in the market.

It is also for the political parties to rise above their petty political interests and sit together for a grand dialogue on economy.

 

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