- Experts predict that the currency will stabilize or consolidate in October after the successful review of the IMF program.
- The rupee is still losing ground due to an increase in demand for the dollar due to a historically high trade and current account deficit.
- With the latest drop of Rs 0.13, the local currency has depreciated 7.89% or Rs 12.43 since June 2021.
KARACHI: The Pakistani currency hit a much anticipated level of Rs 170.10 against the US dollar on the interbank market during intra-day trading on Wednesday.
According to the State Bank of Pakistan (SBP), the local currency closed at Rs 169.97 against the greenback on Tuesday.
The rupee lost further ground in the face of increased demand for the dollar due to a historically high trade and current account deficit.
With the latest drop of Rs 0.13, the local currency has depreciated 7.89% or Rs 12.43 since June 2021 and 11.62% (or Rs 17.7) since its recent high of 152, Rs 27 registered on May 14.
Apparently, the authorities are allowing the currency to depreciate to discourage rising imports and encourage exports with the aim of reducing the growing trade deficit, which poses a threat to the country’s economy.
Pakistan’s two-month (July-August) trade deficit, Pakistan’s two-month (July-August) trade deficit widened 120 percent to $ 7.5 billion after imports hit another all-time high, but exports fell. plunged for the third month in a row despite heavy subsidies to exporters and large currencies. devaluation.
Additionally, the rupee may fall in search of value that could help jump-start the International Monetary Fund’s (IMF) $ 6 billion loan program, which has been on hold for two months. The country is expected to hold staff-level talks with the IMF on the resumption of the program on October 4.
Talk to Geographic newsFinancial expert Farhan Bukhari said the main reason for the constant devaluation of the currency is the “rapidly growing trade deficit”. The widening deficit increased the demand for the dollar.
Bukhari said: “The current situation in Afghanistan has also had a negative impact on the Pakistani currency.”
The expert was of the opinion that people began to wonder about the intervention of the central bank. “When will the SBP use up the high historical reserves present in the country.”
Endorsing his view, Alpha Beta Core CEO Khurram Schehzad said the central bank had recently raised the policy rate by 25bp to 7.25%, which was a move taken to stabilize the rupee parity. dollar, however, a meager 25bp hike won’t be as effective. .
“The prices of food and energy products are increasing in the international market, therefore, the central bank does not have much leverage to take drastic measures,” he said, adding that the central bank cannot not massively raise its key rate because the economy hasn’t restored completely.
Shedding light on soaring inflation, the analyst said that the increase in the local inflation rate is due to an increase in global inflation.
“We need to harmonize monetary and fiscal policy, if these two policies move in different directions, the economy will suffer badly,” Schehzad recommended.
Pakistan Forex Association President Malik Bostan said Geographic news that the currency depreciates sharply because of the situation in Afghanistan.
“Pakistan’s import bill is also increasing due to the uncertain situation in the neighboring county. Since Afghans’ accounts were frozen, traders have been importing essential goods from Pakistan into them and as a result, Pakistani importers have also increased their import orders to meet local demand as well as the demand of the country. Afghanistan, ”he explained.
Bostan reiterated that Pakistan must increase its exports, otherwise “the increase in the import bill will devastate Pakistan’s economy”.
Emphasizing another perspective on the situation, economic expert Muhammad Sohail said that in addition to economic factors, Pakistani policy also affects currency parity.
Schehzad added that it is a natural phenomenon that when the demand for a product increases, bearing in mind the limited supply, the price increases.
The CEO recalled that previously the central bank had predicted that this year the current account deficit would reach 2-3% of GDP as imports increase, while the amount of export growth falls short.
Pakistan’s current account deficit – the gap between the country’s higher foreign spending and lower income – widened to $ 1.5 billion in August 2021.
He added that a few weeks ago, the SBP injected a few dollars into the market to stabilize the rupee against the US dollar.
Speaking of ways to control imports, the analyst said that the central bank does not have much room to reduce imports because 70-80% of total imports are essential goods.
Experts predict the currency will stabilize or consolidate in October after a successful review of the IMF’s program.