Islamabad July 29 2022: Pakistan Rupee appreciate by 1.37 or 0.57 percent to trade at 238.0 as Government of Pakistan clarifies that will strengthen in next few months.
In a press release state bank says that “The Rupee can overshoot temporarily as it has done recently. However, it moves both ways over time. Government of Pakistan expect this pattern to re-assert itself in the coming period. As a result, the Rupee should strengthen in line with improved fundamentals in the form of a smaller current account deficit as well as stronger sentiment, according to the joint statement issued by Ministry of Finance and State Bank of Pakistan.”
Around half of the Rupee depreciation since December 2021 can be attributed to the global surge in the US dollar, following historic tightening by the Federal Reserve and heightened risk aversion.
Of the remaining half, some is driven by domestic fundamentals. In particular, the widening of the current account deficit, especially in the last few months. As noted above, the deficit is expected to narrow going forward as the temporary surge in the import bill is brought under control. As this happens, the Rupee is expected to gradually strengthen.
The remaining depreciation has been overdone and driven by sentiment. The Rupee has overshot due to concerns about domestic politics and the IMF program. This uncertainty is being resolved, such that the sentiment-driven part of the Rupee depreciation will also unwind over the coming period.
Where the market has become disorderly, the State Bank has continued to step in through sales of US dollars to calm the markets and will continue to do so, as needed in the future. Strong steps to counter any speculation have also been taken, including close monitoring and inspections of banks and exchange companies. Further additional measures will be taken as situation warrants.
Rumors that a particular level of the exchange rate has been agreed with the IMF are completely unfounded. The exchange rate is flexible and market-determined, and will remain so, but any disorderly movements are being countered.
Going forward, as the current account deficit is curtailed and sentiment improves, we fully expect the Rupee to appreciate. Indeed, this was the experience during the beginning of the IMF program in 2019, when the Rupee strengthened considerably after a period of weakness in the lead-up to the program.
