Is the rupee undervalued?

[VCheng]

This news that you have posted is VERY OLD

Here is the latest News which says that PKR is OVERVALUED

IMF Sees Pakistan’s Currency Overvalued as Loan Program Near End
https://www.bloomberg.com/news/arti...-currency-overvalued-as-loan-program-near-end

Given that Pakistan consumes more than it produces, the natural underlying trend for the PKR is about a 10% decline in value per year every year, on average. Stopgap measures can stem the trend for short periods of time, but before long a painful adjustment becomes overdue. Another one will be along shortly.

 

[Indus Pakistan]

Given that Pakistan consumes more than it produces, the natural underlying trend for the PKR is about a 10% decline in value per year every year, on average. Stopgap measures can stem the trend for short periods of time, but before long a painful adjustment becomes overdue. Another one will be along shortly.

Been chugging along since 1947. Will keep chugging along. Despite the negative publicty it gets have you checked the living standards with it's arch rival India. Living standards like housing, food, sanitation are better in Pak - this is what a economy should provide first and foremost.

 

[VCheng]

Been chugging along since 1947. Will keep chugging along. Despite the negative publicty it gets have you checked the living standards with it's arch rival India. Living standards like housing, food, sanitation are better in Pak - this is what a economy should provide first and foremost.

Living standards and social development are abysmal across the board in South Asia.

 

[Providence]

Undervalued ? Are you guys kidding me ?

See pak's current account deficit. There is already a downward pressure on pkr and to maintain it at 105 level, the reserves are being used temporarily.

Which idiot wrote the article though ?

 

[BetterPakistan]

IMF knows your economic problems than what your Ministers Tell you

They are your creditors ; they want their money back
So they are right in advising your Government

don't you think you answered your question yourself? IMF works as a bank not an economist. Every suggestion which comes from IMF is only to make sure that they get their money back.

 

[SBD-3]

Undervalued ? Are you guys kidding me ?

See pak's current account deficit. There is already a downward pressure on pkr and to maintain it at 105 level, the reserves are being used temporarily.

Which idiot wrote the article though ?

That's exactly why stable PKR despite a widening CA deficit is undervalued. The exchange rate has always been used as a tool to achieve the export competitiveness and managing current and trade account. PKR should be somewhere 120-125 looking at the peers. Indian Rupee, Chinese Yuan, Bangladesh Tikka, Srilankan Rupee and you name it. They are all depreciating vs US Dollar.

 

[BetterPakistan]

That's exactly why stable PKR despite a widening CA deficit is undervalued. The exchange rate has always been used as a tool to achieve the export competitiveness and managing current and trade account. PKR should be somewhere 120-125 looking at the peers. Indian Rupee, Chinese Yuan, Bangladesh Tikka, Srilankan Rupee and you name it. They are all depreciating vs US Dollar.

1 usd = 80 bangladeshi takka
1 usd = 67 indian rupee

So PKR is already undervalued compare to Bangladesh and Indian Rupee. For competitive exports we don't need to depreciate rupee but we should reduce the cost of manufacturing in Pakistan. Power, GST and other things are quite expensive due to which our exports are not competitive. Indirect taxation is 70% of all Pakistan tax collection which is actually the main reason behind our exports being expensive.

Make exports tax free to make them more competitive, simple.

 

[Providence]

That's exactly why stable PKR despite a widening CA deficit is undervalued. The exchange rate has always been used as a tool to achieve the export competitiveness and managing current and trade account. PKR should be somewhere 120-125 looking at the peers. Indian Rupee, Chinese Yuan, Bangladesh Tikka, Srilankan Rupee and you name it. They are all depreciating vs US Dollar.

You are using the term undervalued in opposite sense as most economists use. The benchmark is USD. So terms used are w.r.t that.

For example, say that foreign exchange traders believe $1 is the equivalent of 4 Chinese yuan, meaning 1 yuan should get you 25 cents. But if the actual exchange rate is 6 yuan to the dollar -- meaning 1 yuan gets you only about 16 cents -- then the yuan is viewed as undervalued. You don't get as much bang for your yuan as you should.

So pkr is actually overvalued as per current exchange rate !

 

[SBD-3]

1 usd = 80 bangladeshi takka
1 usd = 67 indian rupee

So PKR is already undervalued compare to Bangladesh and Indian Rupee. For competitive exports we don't need to depreciate rupee but we should reduce the cost of manufacturing in Pakistan. Power, GST and other things are quite expensive due to which our exports are not competitive. Indirect taxation is 70% of all Pakistan tax collection which is actually the main reason behind our exports being expensive.

Make exports tax free to make them more competitive, simple.

Level doesn't mean undervaluation or overvaluation. If that is so then Japanese Yen and Korean Won are one of the most undervalued currencies and Kuweti Dinar would be one of the most overvalued currency.
Cost of manufacturing requires investment in business technology and R&D for innovation. Which is inherently small in subsidy-addicted textiles. Pakistan's exports are commodity linked so as the global commodity prices slump, so does the exports

You are using the term undervalued in opposite sense as most economists use. The benchmark is USD. So terms used are w.r.t that.

For example, say that foreign exchange traders believe $1 is the equivalent of 4 Chinese yuan, meaning 1 yuan should get you 25 cents. But if the actual exchange rate is 6 yuan to the dollar -- meaning 1 yuan gets you only about 16 cents -- then the yuan is viewed as undervalued. You don't get as much bang for your yuan as you should.

So pkr is actually overvalued as per current exchange rate !

Yes you're right, PKR should depriciate meaning its overvalued at current levels, not undervalued.

 

[Providence]

1 usd = 80 bangladeshi takka
1 usd = 67 indian rupee

So PKR is already undervalued compare to Bangladesh and Indian Rupee. For competitive exports we don't need to depreciate rupee but we should reduce the cost of manufacturing in Pakistan. Power, GST and other things are quite expensive due to which our exports are not competitive. Indirect taxation is 70% of all Pakistan tax collection which is actually the main reason behind our exports being expensive.

Make exports tax free to make them more competitive, simple.

How about learning some macro economic concepts before you utter such "economic blasphemy" (if there is such a word)

 

[BetterPakistan]

How about learning some macro economic concepts before you utter such "economic blasphemy" (if there is such a word)

Beta, the value of currencies are set on demand and supply comparisons. Secondly I have completed a research on it and if you don't have something credible to add in this discussion than keep quiet and let others with economic knowledge comment on it.

Level doesn't mean undervaluation or overvaluation. If that is so then Japanese Yen and Korean Won are one of the most undervalued currencies and Kuweti Dinar would be one of the most overvalued currency.
Cost of manufacturing requires investment in business technology and R&D for innovation. Which is inherently small in subsidy-addicted textiles. Pakistan's exports are commodity linked so as the global commodity prices slump, so does the exports

Bro listen. In Pakistan the prices of commodities are expensive compare to other regional countries because of indirect taxation. Have you ever realize how much our exports are taxed? I have searched and I found that power prices in neighbouring india and bangladesh are low compare to prices in Pakistan in US dollar comparison.

Secondly, if you look at pkr history than in 2007-08 1 USD was 60 etc and from 2008-13 it went from 60 to 100 and this was the time in which Pakistani rupee depreciated the most because of worst PPP policies. By reducing all these things we can keep our exports competitive, exports are not the issue. Appreciating local currency always lead to low inflation rate.

Thirdly, appreciating our pkr will reduce external debt and its servicing too.

You are saying to depreciate PKR. Depreciating PKR will lead to high inflation rate which is not feasible and high inflation rate can risk of increase in monetary policy which in return will lead to high inflation rate.

 

[VCheng]

the value of currencies are set on demand and supply comparisons.

So how many would prefer to buy PKR and sell USD if given an open choice?

 

[BetterPakistan]

So how many would prefer to buy PKR and sell USD if given an open choice?

depends on the market.

After Iran-US deal, Irani currency started appreciating and people invested in it

 

[VCheng]

depends on the market.

The ever-falling value of the PKR indicates that too many PKR are being supplied, driving down its value compared to the USD, which is in greater demand, according to your point above.

 

[BetterPakistan]

The ever-falling value of the PKR indicates that too many PKR are being supplied, driving down its value compared to the USD, which is in greater demand, according to your point above.

an year ago i remember PKR depreciated to 108 against a USD but after that PKR again appreciated to 104.8 and i didn't saw economic shocks etc prevailing here. PKR was depreciated on the demand of IMF and other than that I don't see any reason for depreciating PKR.

The only problem I see here is exports but that is not an issue because appreciating local currency always lead to lower inflation which can keep exports competitive.