New Delhi January 30 2023: Bloomberg calculations show the free-floating rupee should stabilize at 266 to the dollar.
The rupee tumbled about 10% the day after Pakistan abandoned currency controls on Jan. 26. Bloomberg estimate of fair value suggests it should appreciate now — but fear that the International Monetary Fund will withhold aid again could cause a bigger drop in the short-term.
The rupee has dropped by about 14% to 269.63 against the dollar since the central bank withdrew curbs it had been using to keep the currency strong.
The central bank acted to placate the IMF, which has made liberalizing the rupee a condition for releasing aid it has withheld.
The IMF is set to visit Pakistan for loan talks Jan. 31-Feb. 9. The lender skipped meetings that were supposed to take place in November and withheld a tranche of scheduled aid. More foot-dragging would be calamitous for the flood-hit economy. Foreign currency reserves are fast dwindling and the risk of default is high.
Speculation that Pakistan could fail to revive its bailout may put more downward pressure on the rupee. Bloomberg see a risk that the currency could slide to the 270-275 range in the near term before returning to fair value.
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