The State Bank of Pakistan (SBP) has been keeping the rupee afloat since the last two years, opting to keep its value mostly unchanged since 2015.
However, with the general elections in Pakistan due in 1 year, the pundits are weighing in – how long is this artificially-induced stability of the Pakistani rupee going to last?
Anonymous sources say that local banks refuse to trade the Pakistani rupee for a value higher than Rs. 104.87 per dollar. They also said that SBP assists with the foreign currency balance, ensuring that it keeps the Rupee currency value steady. The sources who disclosed this chose to remain anonymous for fear of getting reprimanded by the bank.
If anyone tries to trade at a value higher than Rs. 104.87 per dollar, they receive a call from the regulator within minutes.
Free Floating Currency
Government and SBP officials argue that the rupee is a free floating currency, reacting to supply and demand changes. Contrary to their assertions, the rupee is the only currency to have gained value against the dollar since 2014, by 0.5% to be exact, as per Bloomberg.
The Pakistani economy, despite all the current upbeat buzz surrounding it, faces some serious issues. The current account deficit has increased three fold to $7.3 billion in ten months. Exports have fallen to their lowest point since the last 6 years. Foreign exchange reserves for Pakistan have decreased 15%, falling to $15.9 billion in May from $18.9 billion in October.
Enforced Stability
An economics professor at Iqra University Karachi, Muzaffar Ali Isani, says,
Its artificial, I don’t think there is any stability, however there’s an enforced stability. You have to keep in mind this is an election next year. At least to the run up of the election they will try and keep it unchanged.
Back in 2013, Pakistan was at the verge of a debt crisis, which was staved off by Prime Minister Nawaz Sharif opting for the $6.6 billion IMF loan program. IMF itself says that Pakistan’s currency is overvalued by 20%.
Why SBP is Keeping The Rupee Stable?
When asked why the SBP is trying to keep the rupee stable the bank replied,
Like many other central banks, State Bank of Pakistan occasionally intervenes in the market with the objective to contain the excessive volatility in the exchange rate and ensure smooth functioning of the domestic foreign exchange market.
There is also the CPEC aspect to consider. With China injecting as much as $55 billion for CPEC related projects across the country, concerns have been raised that Pakistan would be left with a huge foreign debt. This, coupled with any depreciation in the value of the rupee would make matters worse.
Widening Trade Gap
Ashfaque Hasan Khan, former Finance Ministry adviser and Dean of the Business dept. at National University of Science and Technology, says,
Keeping our rupee strong means a stronger economy, and this is mindset of this government. However, how can you align this type of exchange rate with an unprecedented rise in trade gap? It’s against economics.
The trade deficit is also piling up. It currently stands at $3.2 billion in April, slightly lower than the last month’s number. This is at its lowest point since 2003.
Foreign Investors Fleeing The Market
Deputy head of research at IGI Finex Securities Ltd. Saad Khan says that investors are selling stocks at the PSX over concerns of an overvalued rupee. Foreign investors have sold stocks worth $232 million in 2017 even after MSCI re-evaluated Pakistan as an emerging market.
If the SBP and government’s interventions are removed from the picture the rupee will depreciate by 8 percent by next year according to Saad bin Ahmed from Multiline Securities Pvt. According to him, currency devaluation is coming after the next elections.
via Bloomberg
Mr. Sheikh Rasheed will surely love to see the depreciation of Rupee…..
sheeda talli has nothing more to do
I would request you to have some respect for politicians as well alongwith respected Judiciary and A.rmy.
i have no respect from “lotta” like sheeda
When someone is at a position he must have God’s blessing and hard work to reach there either he is NS, IK, Zardari, CJ or Chief of Staff. At least we can respect all of them regardless of our political, social or spiritual bindings.
Respect has to be earned. He has lost all his respect cause of his continuous ignorant attitude
And why not? Cheaper Rupee means our exports are cheaper.
Oh wait… we don’t export anything. Oops!
To sab bhai log dollars lay lo phir aglay sal bech dayna
Government is just faking rupee value like other economic indicators but eventually Govt will be exposed.
totally disagreed
It’s a free country.
which country is free, let me know if there is, all countries have laws and rules to obey. Something is permissible and some are not.
He means, it’s a free democratic country, and you have EVERY right to disagree! Peace!
From every post you always try to devalue of everything but you know what everyone knows Pakistan is developing and these small variations in rupees will not effect it so don’t cry and in one post you say Pakistan is reaching highest GDP of 5.5 and second post says we have deficit that can’t be payed back.
Grow up man try to make a balance between your articles.
Cheers
Haha small variations….