In a remarkable turn of events, the Pakistani currency has been on a winning streak, maintaining its upward trajectory for 27 consecutive working days. This exceptional performance marks the first time in three years that the rupee has displayed such resilience. In this article, we’ll delve into the factors behind this remarkable ascent, analyze expert opinions, and explore the potential future of the Pakistani currency.
The Currency’s Impressive Rise
Over the past month, the Pakistani rupee has made impressive gains, hitting a three-month high below Rs278 against the US dollar in the inter-bank market. This dramatic appreciation of the currency is a significant milestone for Pakistan’s economy.
Sana Tawfik’s Projection
Arif Habib Limited Economist Sana Tawfik, when interviewed by The Express Tribune, projected that the rupee would continue its winning streak in the short run, potentially reaching Rs260-265 against the US dollar. This forecast is buoyed by a series of positive developments, which we will explore in detail.
Potential Downward Trend
However, Tawfik also cautioned that the rupee might experience a downward trend in the coming months, particularly in November and December, with a potential depreciation to Rs290-300 by December 31, 2023. The currency market can be highly volatile and subject to various external factors, making it essential to consider all possibilities.
According to the State Bank of Pakistan’s (SBP) data, the rupee has booked fresh gains of 0.35%, equivalent to Rs0.96, and closed at Rs277.62/$ on a recent Friday. Over the past 27 working days, the currency has cumulatively regained 10.62%, amounting to Rs29.48, compared to its record low of Rs307.10/$ hit on September 5, 2023. This resurgence in the rupee is expected to have a notable impact on Pakistan’s economy.
Impact on Inflation
One significant outcome of the rupee’s appreciation is its potential to reduce inflation rates in the country. This reduction is primarily attributed to lower prices for petroleum products, which are expected in mid-October. The currency’s strength could translate into cost savings for consumers.
Positive Sentiment from the Central Bank
Positive sentiment towards the rupee rally is further boosted by a recent statement made by the central bank governor during a meeting with foreign investors. The SBP has met all of the International Monetary Fund’s (IMF) September-end targets, including those for net international reserves (NIR) and net domestic assets (NDA). This achievement bodes well for Pakistan’s economic stability.
This positive development indicates that Pakistan is on track to smoothly pass the first IMF review under the $3 billion loan program in November, paving the way for a second tranche of $700 million. These funds will bolster the country’s foreign reserves and support its balance of payments.
The Origin of the Rally
It’s worth noting that this historic 27-day-long rupee rally was triggered by the government’s crackdown on currency smugglers and hoarders. This action compelled exporters to sell their dollar proceeds in the inter-bank market, as they anticipated the rupee’s appreciation to Rs250-260/$ during this period. Additionally, it encouraged overseas Pakistanis to send remittances through official channels, stabilizing foreign exchange reserves.
The Retail Market
In the open market, the rupee rose by 0.36%, or Rs1, and closed at Rs277/$ on the same Friday. This retail market performance indicates that the currency has cumulatively gained 18.41%, or Rs51, in just over one month.
Despite the current rally, Sana Tawfik cautioned that the rupee might come under pressure in November and December, especially when imports are expected to rise, potentially counteracting the central bank’s policy rate reduction.
A Promising Outlook
In conclusion, the Pakistani currency’s recent performance is a testament to the resilience and adaptability of the nation’s economy. While challenges lie ahead, the positive sentiment and achievements to date suggest that Pakistan is on a path to economic stability and growth.