The rise of the rupee consequent upon the return of Ishaq Dar to Pakistan has led to the rupee going from a low of Rs 239.32 on September 2, to Rs 229.06 on Thursday, but while it must be satisfying to Mr Dar to learn that his return to the Finance Ministry means that brokers are running scared enough of him to bring down the rupee on their own.Mr Dar’s main political task is to rein inflation,and that he probably plans to do by raising the value of the rupee. That they are liquidating their positions indicates that they expect him to repeat what he had done in his last stint as Finance Minister,which was to borrow dollars from the market and use them to push up the price of the rupee by creating sufficient liquidity in the market.
He can’t do it now; the IMFvwon’t let him. The forex reserves are at the moment too low to allow such a policy, so he will have to let the rupee find its true value. What exactly that value is, is subject to a number of factors, to do both with foreign trade and domestic policy, but it is not known what, if any, figure of a fair value Mr Dar carried in his head. Even if that figure is reached, Mr Dar will still have to face the morning after, when the rupee begins to slide again.
The rupee has moved from being a means of exchange, its dollar parity determined by its trade patterns, to an object of speculation, with a volatility that gives exporters and importers headaches. The present bull run will end, just like the bull run caused by the resumption of theIMF programme, and the real test of Mr Dar’s nerve and abiliieswill begin hen, when the rupee begins to fall.Mr Dar has become a factor in his own right, but it is to be seen how he handles the downside.
