Editorial
Over the past 15 months, the Pakistani Rupee (PKR) has seen slight appreciation, holding steady around 277-288 against the US Dollar (USD) for the last nine months. This stability has been attributed to strong inflows, including a surplus in the current account and significant purchases by the State Bank of Pakistan (SBP), which boosted its reserves to $12.1 billion from $9.3 billion. However, signs of unease are emerging, signaling the possibility of a marginal depreciation.
Treasury officers from major banks suggest that despite improved inflows, external pressures are building. Exporters, particularly in the textile sector, are struggling with reduced competitiveness due to regional currency devaluations. The Indian rupee and Bangladeshi taka have depreciated against the USD, making Pakistani exports less attractive. This has led to a squeeze on margins, with textile exporters expressing frustration over lost opportunities.
Furthermore, the strengthening US dollar index is a significant factor. The rise in US 10-year bond yields, from 3.75% to 4.61%, is attracting global liquidity, causing currencies of competitors to Pakistan’s exporters, including India, to weaken. These global dynamics, combined with rising oil imports and looming repayments, add pressure on the PKR’s stability.
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Despite these challenges, some influential circles in Pakistan continue to advocate for further appreciation of the PKR, a stance that appears out of touch with the current economic realities. The SBP Governor himself has acknowledged rising pressures from non-oil imports and the potential for increased repayment obligations in the coming months.
There is also concern about the long-term effects of the SBP’s recent interest rate cuts. While these measures have stimulated demand, they also risk eroding the country’s current account surplus. The result could be higher demand for imports, further intensifying pressure on the currency.
In light of these challenges, some experts believe that a modest 1-2% depreciation of the PKR against the USD is prudent. While the market shows no signs of panic, timely action from the SBP is crucial to prevent speculative behavior. Improved communication and a measured approach will be key to managing the currency’s trajectory without triggering unnecessary alarm.
