The reasons for the fall of the Pakistani rupee against the US dollar

0

BY ASRAR COVER: The Pakistani rupee (PKR) is constantly battered by difficult economic times and any effort to stop its fall has yielded few satisfactory results.

The decline is the cumulative impact of short-sighted economic policies followed by the exemption in place as well as the untenable economic situation experienced by the country.

It is a whirlwind of pressure on the economic denominators which did not let the rupee come out of the doldrums and started a recovery march. Another blow was dealt to the besieged rupee when international monetary firm Fitch downgraded its forecast for the rupee, illustrating that the global rating agency does not expect the economic and geopolitical factors exerting pressure on the rupee. pressure on the national currency will dissipate soon.

Citing factors such as the deterioration of the trade balance, a tightening of US monetary policy, higher structural inflation and the increase in dollar outflows to Afghanistan, he predicted that the rupee would weaken on average to 164 to the dollar this year, compared to the previous projection. of 158 and 180 compared to the earlier forecast of 165 in 2022.

On top of that, the US Senate bill calling for sanctions against Pakistan forced the stock markets to crash.
What has been observed recently is that with the 12% loss of the KSE-100 in dollars, the PSX recently had its worst times since April 2020.

The stock market does not affect economic fundamentals like the fall of the rupee does, but its fall adds to the economic gloom and has a corresponding negative effect. Pakistan’s exchange rate has already deteriorated by around 12% since early May in response to the widening current account deficit, as the government pushes its expansive monetary and fiscal policies more aggressively to achieve economic growth vigorous, fueling domestic demand and imports.

The weakening currency not only pushes up energy and food prices to the detriment of low- and middle-income households, it also creates economic uncertainty.

The only good news emerging from this widespread gloom is the good news that the rupee is finally receiving help from the government and the State Bank in the form of measures to curb imports of non-essentials and luxury goods to control the economy. current account deficit. and price inflation.

The government is also reportedly preparing a plan to ban the export of perishable goods for the same reasons. But these one-off actions aimed at combating emerging vulnerabilities and avoiding an immediate crisis in the external sector should not distract policymakers from the structural factors behind the decline of the national currency.

Much to the chagrin of government financial planners, Pakistan has been unable to boost exports, increase industrial and agricultural productivity, develop sustainable domestic energy sources, and implement governance reforms. long time.

This means that the rise in global commodity prices will continue to put pressure on the current account and the rupee, as is currently the case.

The stage has come when the government must find long-term solutions to exchange rate volatility and close the gap between inflation rates in Pakistan and its trading partners.

Until then, we can only hope for a less brutal fall in currencies, which would not harm the economy. Fitch’s projection poured cold water on the outlook for the rupee’s recovery. New York-based Fitch’s forecast, one of the world’s three major rating agencies, for the average rupee rate this year is now 164 rupees to the US dollar, down from 158 rupees previously.

A day ago, shares fell almost 3% as the rupee fell to an all-time high of Rs 170.27.

The rupee, which has been called the worst performing currency in Asia, appears to have opened the way for the bullish US dollar to rise unchecked and erode the remaining value of the local currency.

The currency also rapidly lost purchasing power in the domestic market, causing inflation that hit the general public hard. On August 26, 2020, the dollar reached 168.43 rupees. Then it started to drop and hit Rs 151.83 on May 14, 2021.

However, the greenback has started to rise and has appreciated 6.6% and 9.9% since the 14

June and May 2021 respectively. The State Bank of Pakistan (SBP) had earlier indicated that the dollar may appreciate in the current fiscal year due to an expected higher current account deficit. Now, in his projections for 2022, Fitch expects an average rate of 180 against a previous forecast of 165.

Fitch believes that the currency would weaken further and this is based on the deterioration of Pakistan’s terms of trade, the tightening of US monetary policy, as well as the flow of US dollars from Pakistan to Afghanistan.

Analysts say the rupee has been hit by a consistently high demand for dollars due to the country’s current account deficit as the Afghan situation increases pressure.

Writer Hoor Asrar Raouf is an independent contributor. She remained a National Swimming Champion and recently graduated from UCF-USA in Hospitality and Event Management.ent

Disclaimer: The opinions expressed here are solely those of the author and do not necessarily reflect the opinions and beliefs of ARYNews or its management.

Facebook notice for the EU!
You must login to view and post FB comments!


Source link

Share.

About Author

Comments are closed.