Will The Rupee Devalue Further?

[SEOminati]

Pre-corona the Rupee started to gain value slowly. But now looking at the current situation it looks like we might be in for another immense devaluation cycle. This means more costlier vehicles, etc and the dream of a Naya Pakistan would again take another hit.

What do you guys think?

 

[aasimanwaar]

It will if more Hot money goes out but will be stable if replaced from other sources. Out of 3 billion almost 2 is taken out.

 

[SEOminati]

It will if more Hot money goes out but will be stable if replaced from other sources. Out of 3 billion almost 2 is taken out.

So how are we going to replace. More loans?

 

[xyxmt]

its not the rupee boys its the USD getting stronger, against all currencies

 

[RAMPAGE]

The less US dollars in Pakistan, the less the value of the Pakistani Rupee. The amount of US dollars is dependent on our exports and remittances. The more dollars we have, the less their demand and the amount of rupees we have to pay for them. Since we will most likely see a decline in both exports and remittances, the supply of dollars will decrease and their demand would increase. As a result, we will have to pay more rupees to buy dollars, which is precisely what you know as rupee devaluation.

I sincerely doubt the government would have any dollar reserves to inject into the market to maintain the current exchange rate.

 

[ejaz007]

With hot money exiting rupee is devaluing.

 

[HAIDER]

200 was expected long time ago.. Plus Corona impact around the world economy.

 

[nahtanbob]

I do not know what happens to remmitances in the short run. in the intermediate term (6-18 months) it will sharply plunge. There is no air travel, no worker visas. The blue collar workforce is being hammered all around the world.
I am assuming it takes several months to sort this virus out.

 

[Nilgiri]

The less US dollars in Pakistan, the less the value of the Pakistani Rupee. The amount of US dollars is dependent on our exports and remittances. The more dollars we have, the less their demand and the amount of rupees we have to pay for them. Since we will most likely see a decline in both exports and remittances, the supply of dollars will decrease and their demand would increase. As a result, we will have to pay more rupees to buy dollars, which is precisely what you know as rupee devaluation.

I sincerely doubt the government would have any dollar reserves to inject into the market to maintain the current exchange rate.

Well the mechanism was never about flooding/holding USD (from reserves) like China can do at relevant scale for CNY peg....given it has generally run a (large) current account surplus in first place.

Rather Pakistan govt has always done it through loans/bonds (to create artificial demand for PKR outside country) and accepting the costs (there are several) of doing that. USD reserves are just too small in pakistan case and largely accrued through these loans (rather than current account, given Pakistan has deficit generally ) in first place.

Thats why there is a net positive of reserves in first place if you think about it...given exports + remittances is more than offset by imports and outflows each time by large amount (so how does the USD accrue? its through capital account mechanisms like loans and bonds).

 

[Yaseen1]

u.s dollar will collapse and lose its value due to reduction in international trade leading to lower demand of dollar,I think digital currency like bitcoins will gain value

 

[RAMPAGE]

Well the mechanism was never about flooding/holding USD (from reserves) like China can do at relevant scale for CNY peg....given it has generally run a (large) current account surplus in first place.

Rather Pakistan govt has always done it through loans/bonds (to create artificial demand for PKR outside country) and accepting the costs (there are several) of doing that. USD reserves are just too small in pakistan case and largely accrued through these loans (rather than current account, given Pakistan has deficit generally ) in first place.

Thats why there is a net positive of reserves in first place if you think about it...given exports + remittances is more than offset by imports and outflows each time by large amount (so how does the USD accrue? its through capital account mechanisms like loans and bonds).

Yep, that's how we like to run our economy. The day we start producing instead of borrowing and importing, we'll have an actual economy.

It's not a case of bad policy making. Lots of very smart Pakistani economists both in the country and abroad. We have a culture that does not like to produce what it consumes. Both the public and government do not like to think beyond their immediate needs. Our problem isn't a lack of policy making, though there are many problems with policy implementation; our problem is a bad attitude.