Karachi, September 3, 2023 – Following a significant depreciation over the past two weeks, the Pakistani Rupee (PKR) is poised to exhibit resilience against the US dollar in the coming week, offering some solace to concerned observers.
The local currency concluded the week on September 1, 2023, at a rate of PKR 305.47 to the dollar, marking a decline of 3.84 percent from its August 11, 2023 value of PKR 294.92.
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In the open market, where it is freely traded, the rupee experienced a 4.2 percent decline throughout the week, sliding from 315 per dollar on Monday to 328 on Friday, as reported by the Exchange Companies Association of Pakistan.
While expectations suggest that the rupee may encounter challenges in the upcoming week, the rate of depreciation seems to have slowed down. Analysts acknowledge that the rupee will remain under pressure but anticipate any weakness to manifest gradually. Factors contributing to heightened demand for US dollars include capital withdrawals, political instability, and economic uncertainties.
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One contributing factor to the rupee’s recent decline has been the diversion of remittances into hawala, an informal money transfer system. This diversion has fueled the demand for dollars among smugglers and informal or under-invoiced traders, according to analysts.
To fulfill the conditions of a $3 billion bailout package from the International Monetary Fund (IMF), import limits were eased, adding further pressure on the rupee’s value. Additionally, the currency has been affected by political instability and economic uncertainty.
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The State Bank of Pakistan (SBP) has clarified that the Monetary Policy Committee will convene as scheduled on September 14 to determine the policy rate, dispelling rumors of an off-cycle review. Analysts anticipate that, given the likelihood of inflation remaining higher than anticipated, interest rates may increase by at least 100 basis points. The consumer price index is expected to stay elevated in the short term due to the rupee’s depreciation and rising energy prices.
During its last meeting held on July 31, the SBP maintained the policy rate at 22 percent. Since September 2021, the central bank has raised the policy rate by a total of 1,500 basis points in response to economic challenges and inflationary pressures.
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As the nation looks ahead to the coming week, there is a sense of cautious optimism that the PKR may exhibit greater resilience against external pressures. Nonetheless, the situation remains closely monitored in light of ongoing economic challenges and global financial dynamics. Stay tuned for updates as the situation unfolds.
