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Pakistan's rupee sees worst month in over 50 years

ghazi52

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Pakistan's rupee sees worst month in over 50 years


Ali Ahmed

Design: Hussain Afzal

Design: Hussain Afzal


Battling high import payments, depleting foreign exchange reserves, and political turbulence, the Pakistani rupee saw its worst month in over 50 years after depreciating 14.5% against the US dollar.

The rupee had started July off at 204.85 in the inter-bank market. However, despite fewer trading sessions due to Eid holidays, the currency received a hammering at the hands of the dollar to eventually close at 239.37 on July 29.

This was the rupee’s second-worst monthly performance against the US dollar since May 1972, when the local currency recorded a plunge of 57%. Back then, the then government, while terming the decision inevitable, announced to devalue the Pakistan Rupee, reducing its parity value from Rs4.77 to Rs11 to a US dollar.

Fast-forward 50 years, and the rupee had already reached the level of over 200 by July 2022.
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Its latest drop can now be attributed to multiple factors including escalating domestic political tension, low foreign exchange reserves and, as experts have called it, speculative behaviour on part of stakeholders.

Interestingly, the rupee saw a depreciation run of 10 sessions – out of a total 17 – all of which came right after the International Monetary Fund (IMF) announced its staff-level agreement with Pakistan authorities on July 14.

It was also reported less than a week later that the IMF is looking to assess Saudi Arabia’s commitment to financing Pakistan before the multilateral lender disburses fresh funds to the country.

What now for the currency

Economic experts said the rupee would see a respite in the coming weeks, at least in the short term.

“Although we believe that the Rupee still has inherent depreciation bias in the long-term, in the short term, we expect some stability to be restored,” said Arif Habib Limited (AHL) in a report titled 'PKR vs. USD- Any relief on the cards?'.

“We attribute this short-term stability conditional upon: inflows from bilateral and multilateral creditors, IMF inflows, and strengthening of some macro-economic variables along with State Bank of Pakistan’s (SBP) attempts to curb market speculation,” it said.

Saad Khan, Head of Research at IGI Securities, told Business Recorder that success with the IMF could lead to a depreciation break.

“If everything goes as per the plan, pertaining to the IMF, it could push the rupee down to 225-230. However, in the long-term, the rupee would remain lower,” he said.

Elaborating, Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited, said the rupee's fall is due to a mismatch between inflows and outflows.

“The market does not have dollars, and there are Letters of Credit (LCs) that need to be retired. However, the disbursement of funds from the IMF would see a return of normalisation and the recovery would be fast,” said Rauf.
The local currency could appreciate around Rs20-25 as the situation normalises, with import payments expected to decline as well.

Meanwhile, Wajid Rizvi, Head of Research at Tresmark Research, said by mid-August the rupee would begin improvement.
“Commitments from China and Saudi Arabia would be realised after the IMF nod,” he said.



 

RescueRanger

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Using LC's as an excuse and panacea is poor even of PMLN. This is a protracted problem one that is affecting the global market and Pakistan is not immune to it, we have seen the largest economy in the world , the US contract twice leading to fears of a recession:

Leading economists forecast a global recession is on the cards for 2023:

Pakistan's problems are made worse due to current account deficit and trade deficit figures are in red because of huge debt payments. Pakistan's foreign exchange reserves have dwindled to $8.57bn [1]. Net foreign reserves held by commercial banks stood at $5.8 billion, taking total liquid reserves to $14.4 billion.

Nobody can clearly say if the PKR will continue to decline, hopefully things will become a little clearly when the IMF authorises the release of the $1.17 billion initial loan to Pakistan sometime in Aug. Even before this happens, it is expected that China, Saudi Arabia or the UAE may consider placing a few billion dollars funds in the SBP account as Pakistan has already reached a staff-level agreement with the IMF and only its formal approval from the IMF’s board is awaited. [2]

If that happens and our forex reserves are augmented substantially that may create room for the central bank to lend “limited” support to the rupee.

To quote Mohiuddin Aazim - Financial Journalist at Dawn News "For a long time to come, the country may have to continue external borrowings, just to retire or service old external debts and to keep bare minimum forex reserves with the SBP. Sadly, a sharp — and sustainable— rupee recovery may remain elusive in near future."

[1] https://www.business-standard.com/a...llen-by-754-mn-to-8-57-bn-122072801525_1.html
[2] https://www.bloomberg.com/news/arti...reached a staff,said in a statement Wednesday.
 

Olympus81

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If oil prices remain at levels above $90 for a few months, then default is guaranteed.

CAD is effectively out of control and the PDM/Establishment coalition remain clueless on how to fix it.
 

Clutch

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If oil prices remain at levels above $90 for a few months, then default is guaranteed.

CAD is effectively out of control and the PDM/Establishment coalition remain clueless on how to fix it.


I hope oil remains above $90 for many months ahead.... Only a complete default and failure of the Imported government will wake up the treasonous coward corrupt "Pakistani Establishment"....
 

Wood

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“The market does not have dollars, and there are Letters of Credit (LCs) that need to be retired. However, the disbursement of funds from the IMF would see a return of normalisation and the recovery would be fast,” said Rauf.
The local currency could appreciate around Rs20-25 as the situation normalises, with import payments expected to decline as well.
This is what I've been saying as well. But I expect that PKR will be closer to 200. Problem right now is that IMF board should be convinced that Pakistan will not violate the terms of agreement with IMF again. General Bajwa has sought American support to do just that :cheers:
 

fna

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I hope oil remains above $90 for many months ahead.... Only a complete default and failure of the Imported government will wake up the treasonous coward corrupt "Pakistani Establishment"....
might not be the chemo we want. might be the chemo we need.
 

ghazi52

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Fluctuation of the Dollar rate in Pakistan from 1947 to 2022 as per the exchange data from CEIC:

In 1947 1 USD = 3.31 PKR
In 1948 1 USD = 3.31 PKR
In 1949 1 USD = 3.31 PKR
In 1950 1 USD = 3.31 PKR
In 1951 1 USD = 3.31 PKR
In 1952 1 USD = 3.31 PKR
In 1953 1 USD = 3.31 PKR
In 1954 1 USD = 3.31 PKR
In 1955 1 USD = 3.91 PKR
In 1956 1 USD = 4.76 PKR
In 1957 1 USD = 4.76 PKR
In 1958 1 USD = 4.76 PKR
In 1959 1 USD = 4.76 PKR
In 1960 1 USD = 4.76 PKR
In 1961 1 USD = 4.76 PKR
In 1962 1 USD = 4.76 PKR
In 1961 1 USD = 4.76 PKR
In 1962 1 USD = 4.76 PKR
In 1963 1 USD = 4.76 PKR
In 1964 1 USD = 4.76 PKR
In 1965 1 USD = 4.76 PKR
In 1966 1 USD = 4.76 PKR
In 1967 1 USD = 4.76 PKR
In 1968 1 USD = 4.76 PKR
In 1969 1 USD = 4.76 PKR
In 1970 1 USD = 4.76 PKR
In 1971 1 USD = 4.76 PKR
In 1972 1USD = 11.01 PKR
In 1973 1 USD = 9.99 PKR
In 1974 1 USD = 9.99 PKR
In 1975 1 USD = 9.99 PKR
In 1976 1 USD = 9.99 PKR
In 1977 1 USD = 9.99 PKR
In 1978 1 USD = 9.99 PKR
In 1979 1 USD = 9.99 PKR
In 1980 1 USD = 9.99 PKR
In 1981 1 USD = 9.99 PKR
In 1982 1 USD = 11.85 PKR
In 1983 1 USD = 13.12 PKR
In 1984 1 USD was 14.05 PKR
In 1985 1 USD = 15.93 PKR
In 1986 1 USD = 16.65 PKR
In 1987 1 USD = 17.4 PKR
In 1988 1 USD = 18 PKR
In 1989 1 USD = 20.54PKR
In 1990 1 USD = 21.71 PKR
In 1991 1 USD = 23.8 PKR
In 1992 1 USD = 25.08 PKR
In 1993 1 USD = 28.11 PKR
In 1994 1 USD = 30.57 PKR
In 1995 1 USD = 31.64 PKR
In 1996 1 USD = 36.08 PKR
In 1997 1 USD = 41.11PKR
In 1998 1 USD = 45.05 PKR
In 1999 1 USD = 51.90 PKR
In 2000 1 USD = 51.90 PKR
In 2001 1 USD = 63.5 PKR
In 2002 1 USD = 60.5PKR
In 2003 1 USD = 57.75 PKR
In 2004 1 USD = 57.8 PKR
In 2005 1 USD = 59.7 PKR
In 2006 1 USD = 60.4 PKR
In 2007 1 USD = 60.83 PKR
In 2008 1 USD = 81.1 PKR
In 2009 1 USD = 84.1 PKR
In 2010 1USD = 85.75 PKR
In 2011 1 USD = 88.6 PKR
In 2012 1 USD = 96.5 PKR
In 2013 1 USD = 107.2PKR
In 2014 1 USD = 103 PKR
In 2015 1 USD = 105.20 PKR
In 2016 1 USD was 104.6 PKR
In 2017 1 USD = 110.01 PKR
In 2018 1 USD = 139 PKR
In 2019 1 USD = 163.75 PKR
In 2020 1 USD = 168.88PKR
In 2021 1 USD = 179.16PKR
In 2022 1 USD = 230.00PKR
Today 1 USD = 242PKR
Source: CEICData
 

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