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The recent depreciation of the Rupee (in the first
quarter of FY01) coupled with a tightening of monetary policy to defend the Rupee, should
help narrow the trade gap. However, the market. response to the free float has not been
very positive, as a sense of unease has played the dominant role in determining the
official (interbank) exchange rate; fundamentals seem to be taking a back seat as
speculators set the market tempo. Although the recent decision to impose cash margins on
imports has contained the panic amongst importers and brought some semblance of calm to
the foreign exchange rate, the market is still looking towards IFI assistance and the
additional rescheduling of Pakistan's external loans for a more robust calm.
