Daily Times

In a clear departure from its earlier position of allowing market forces to determine the exchange rate, the government has now decided to intervene to stabilise the rupee which hit the fresh historic low of Rs170 against the US dollar in the interbank on Wednesday.

Reliable sources told this correspondent that the federal cabinet at its last meeting on Tuesday held threadbare discussion on the unrelenting rupee devaluation, and directed the State Bank of Pakistan (SBP) to do the needful to avoid any further devaluation in order to protect the people from the price hike of essential commodities.

According to analysts, different options are available to state agencies to contain market induced changes to the exchange rate. The most common amongst them is pumping of money by the central bank into the market. They said this will keep inflation under check but at the cost of shrinking foreign exchange reserves and widening of trade and current account deficits.

Sources confirmed that this intervention has now become indispensable to defend the weakening rupee.

They however did not reveal as to how much dollars will be injected to achieve the task. They defended the move saying there is no country in the world which leaves the exchange rate completely at the mercy of market forces. Instead, the government or the central bank intervenes to keep the exchange rate from running amok.

Rising import payments and the situation in Afghanistan are cited the main reasons behind the shortfall of dollar in the market. The recent hike in interest rate was also aimed at preventing further devaluation of rupee.

Finance experts were optimistic that the SBP’s intervention as well as the successful review of IMF program in October will help consolidate and stabilise the local currency. They however stressed the need for bolstering exports to address the country’s economic woes.