THE Memorandum on Economic and Financial Policies signed with IMF ‘limits’ the role of the central bank in the foreign exchange market and thus is identified as a significant factor in the depreciation of the rupee against the dollar in recent weeks. The rupee has lost 6pc of its value in the interbank market between July 1 and now, in the wake of the State Bank’s drive to mop up dollars from the market as ‘prior action’ to meet one of the many IMF conditions. However, Finance Minister Ishaq Dar denies the fall is a result of “implicit or explicit understanding” with the IMF and he may have a point. A whole set of economic policies and conditions — inflation, growth rate, international trade, investment, savings, foreign exchange reserves, etc — contribute to determining the value of one currency against the other. If the key economic fundamentals are weak, the currency will keep falling. That is exactly what is happening with the Pakistani rupee.

The rupee remains ‘overvalued’ even after the recent dip. Indeed, the IMF loan has helped it stabilise for the time being. Still, further erosion in its value cannot be ruled out going forward. Mr Dar has a couple of times termed the drop in the value of the rupee as “temporary” and “speculative”. Contrary to his analysis it is the stability of the rupee which is temporary unless the economy is put back on the right track and key fundamentals of the economy are improved. The minister must understand that blaming commentators on economic affairs for putting pressure on the rupee will not help him or the currency. Even the speculators do not jump into the market blindly, without sufficient evidence to support the risk they are taking with their money.