KARACHI: Pakistani rupee has been constantly under pressure as the demand for dollars by the importers remained robust despite massive hikes in the interest rate.
A high-interest rate directly impacts the exchange rate since it makes money costlier for importers and other buyers lowering the demand which depreciates the greenback. As a result, the importers have to borrow costlier money from banks while they purchase dollars at higher rates to clear their import bills.
The State Bank of Pakistan has been delivering policy rate increases since September 2021 with a key objective to check the surging inflation — which hit over 21 per cent in June — and cool down the economy by curtailing the imports which continued swelling despite several measures.
The central bank on Thursday again increased its policy rate by 125 basis points to 15 per cent.
Despite this double negative impact, the country’s imports showed no respite and soared to $80 billion in FY22.
“The latest increase in the interest rate would not stop the race for higher imports which means the dollar demand will remain high with increasing prices,” said Zafar Paracha, General Secretary of Exchange Companies Association of Pakistan (ECAP).
He said the market did not react to interest rate hikes as the imports kept increasing despite costlier money which means other important factors need to be addressed.
