The Pakistani rupee has started a historic 27-day winning streak, hitting a three-month high below Rs 278 against the US dollar in the interbank market. Economists believe that this upward trend will continue in the short term, with the rupee expected to strengthen to Rs 260-265 against the greenback. However, they also expect a possible pullback to the downside in November-December, with the rupee falling to Rs 290-300 by December 31, 2023.
This remarkable rupee appreciation was triggered by a crackdown on currency smugglers and hoarders, which forced exporters to sell their dollar earnings in the interbank market on expectations of a rupee appreciation.
The crackdown also prompted overseas Pakistanis to send remittances through official channels, bolstering foreign exchange reserves. In the open market, the rupee saw a cumulative gain of 18.41%, or Rs 51, in just one month.
Continuous devaluation of dollar in Pakistan has become a norm in both banking and open market. The State Bank of Pakistan (SBP) reports a daily dollar rate, which is depreciating, indicating a market-based exchange rate determined by supply and demand dynamics.
Nevertheless, some bankers argue that the State Bank is leading a continued decline, as it has become the biggest buyer from the banking market, buying foreign exchange through forward bookings at marginally higher rates.
A 5.3 percent increase in remittances in September is seen as a positive sign after a prolonged downward trend.
The continued depreciation of the dollar has been welcomed by various stakeholders, including Atif Ikram Shaikh, who is a candidate for the presidency of the FPCCI. He sees this as highly satisfactory for the public and the business community, improving foreign exchange reserves and boosting investor confidence.
However, they highlight the need to control and monitor growing demand from importers, reduce energy prices, increase exports and remittances, and control costs. Shaikh emphasizes that administrative measures are insufficient in the long run and calls for a restructuring of economic policies to promote public welfare and self-sufficiency.
Sheikh noted that Pakistan has been facing a significant foreign exchange crisis in the past, which has created difficulties for domestic and foreign investors and affected the clearance of goods at the ports.
To address these challenges, he suggests shifting the import bill of petroleum products to solar and wind energy, improving domestic agriculture for self-sufficiency and making production costs competitive in the global market to increase exports. They emphasize that people’s welfare should be prioritized, and policies should encourage investment in productive sectors to increase production, exports and employment opportunities.