Business is booming.

Rupee depreciation – Newspaper – DAWN.COM

0 2


THE recent exchange rate volatility, which saw the rupee drop to a multi-month low of 167.23 to a dollar on Monday, is a natural response of the home currency to surging trade deficit, rising inflation and negative interest rates. That the Pakistani rupee has become the worst-performing currency in Asia from the best performer in March signifies a deteriorating market perception about the country’s capacity to finance its foreign payment obligations going forward. The 144pc year-on-year surge in trade deficit in August to the highest-ever level of Rs4.23bn has put new pressure on the rupee. Hence, we see many calling for an early upward adjustment in interest rates, measures to restrict (luxury) imports, market interventions to arrest further devaluation and steps to prevent the build-up of imported inflation and negative business sentiment. Traders booking dollars for future import payments at a higher premium or spread indicates an expectation of further rupee depreciation as the current account imbalance is anticipated to breach the State Bank’s projections of 2pc-3pc on account of stronger imports amid rebounding commodity and energy prices. The freeze on the IMF loan programme and the possible insecurity spillover from Afghanistan are also compounding economic uncertainties and keeping the rupee under pressure.

Pressure has been accumulating since May when it became clear that the government wanted to ditch the harsh IMF policies in favour of rapid growth before the next election. The ‘revival’ of growth has only put extra pressure on the external sector in the shape of drastic import growth without any significant improvement in exports. Sadly, the current growth spurt being touted is no different to the one under the previous PML-N set-up in that it is also being financed through expansive fiscal and monetary policies and short-term expensive borrowings without implementing productivity reforms. Thus, the sustainability of the present ‘boom’ remains uncertain amid fears of further deterioration in the fiscal and current account imbalances. Expecting the painfully slow uptick in exports and remittances to save the growth momentum would be folly.

Published in Dawn, September 7th, 2021



Read More: Rupee depreciation – Newspaper – DAWN.COM

2021-09-07 02:47:39

Leave A Reply

Your email address will not be published.

Watch Sky News