Pakistani Rupee has received another massive blow as the rupee plunged to Rs 118 against the US Dollar.
Before the start of the day, the value of one dollar stood at Rs 110.5. However, the value of the national currency depreciated in what is said to be a devaluation by the central bank.
It is the second devaluation of the rupee by State Bank of Pakistan in just three months. Before the devaluation of rupee in December 2017, one dollar was traded at a rate of around 105 rupees. After an increase of more than 7 rupees in a matter of hours, dollar stands equal to Rs 118.
Experts had already anticipated this, as World Bank also recommended that rupee should be devalued to decrease the trade deficit.
The International Monetary Fund (IMF) previously appreciated SBP’s decision to devalue money to curb imports. However, IMF advised maintaining greater exchange rate flexibility. IMF said;
Staff advised to unwind the increased government borrowing from the SBP, which would support monetary tightening. Going forward, greater exchange rate flexibility will need to be accompanied by further adjustment of the policy stance as well as strengthening of the interest rate-based monetary policy framework with appropriate intermediate and operational monetary policy targets, and a clear limit to FX interventions.
Moody’s also recently recommended the devaluation of rupee as they estimated that it was overvalued by around 20%.
Pakistan’s foreign reserves have also hit another low and as a result, rupee faced the wrath of the market. The effects of devaluation will be passed on to the local consumer especially in the automobile market. Major companies including Toyota, Honda, and Suzuki have already hiked prices more than once in the past three months due to the devaluation of rupee.