Fact Check: Reports That Rupee is Likely to Depreciate in Next 6 Months Are Wrong

In the past few days, several media outlets reported that the rupee is likely to depreciate further in the next 6 months, citing a review from the State Bank of Pakistan. These reports have cited the State Bank of Pakistan’s (SBP) annual Financial Stability Review (FSR) 2018.

“Over the next six months, foreign exchange rate risk, the balance of payment pressures, widening the fiscal deficit and increase in domestic inflation was reported as key risks,” said the media reports citing SBP’s review.

The likelihood of occurrence of a high-risk event in Pakistan’s financial system over the short-term is slightly higher than the medium-term.

SBP’s Systematic Risk Survey

The participants of this risk survey include executives of commercial banks, insurance companies, and exchange companies as well as members of the academia, financial journalists, officials of Security and Exchange Commission of Pakistan (SECP), and think tanks.

While the media reports did get it right about the risk factors revealed in the perception survey and not by the central bank itself, they did not mention that the perception risk survey dates back to January 2019 — eight months ago.

The survey under question is the third wave of the central bank’s biannual Systemic Risk Survey, conducted in January 2019. The purpose of this poll was to determine the risk perceptions of participants in the market and assess their confidence in the financial system’s stability.

Stability in Rupee-Dollar Parity

The last quarter has seen uncertainty and volatility in the financial markets that led to a sharp increase in rupee-dollar parity. The decreasing foreign exchange reserves, rising current account deficits, soaring debt, and delays in paying off debts caused the rupee to fall sharply in the first half of 2019.

However, the market has stabilized in the last couple of months. The uncertainty around the International Monetary Fund (IMF)’s bailout package has diminished as well.

According to State Bank’s quarterly report, the mounting pressure on the exchange rate has been eased thanks to hefty foreign exchange inflows and the IMF has finally released its first tranche of the bailout. All these conditions point toward a relatively stable local currency, not only in the interbank market but also in the open market.

With the central bank’s recent efforts to strengthen the Anti-Money Laundering/Countering Financing of Terrorism (AMT/CFT) for exchange companies, market speculation is under control and hoarding US dollars has been discouraged. This has ruled out any unanticipated incident pertaining to the rupee-dollar parity.

Furthermore, SBP’s Governor, Raza Baqi, has quelled rumors that the government will initiate a free float exchange rate to meet the IMF’s conditions. He explicitly revealed that the central bank will follow a market-determined exchange rate but has chosen not to free float it. It means that though there will be lesser interventions by the central bank, SBP will interfere if there is extreme volatility.


  • Dont really want to get into an argument……. important is Pakistan should prosper and our politicians should take measured decision.

    for all dear readers its no fun that God forbid our currency further devalues.

    • Don’t worry lot of Economists will popup around the internet like mushrooms to tell you the benefits of such devaluation if it happen.

      • Do you see any Muslim around any more, anyway? I dont. Charlatans dont deserve divine assistance.
        Must note that Allah does not always help real Muslims directly because people like you whine a lot upon divine intervention. Besides, Muslims love to fight it out on merits.
        You should be happy that He lets you open your mouth instead of erasing you off the face of the earth. Dogs bark without getting paid. You are lucky you get paid too.
        Islam is here to stay. It has always been, despite worse situations. Try harder.

    • On the contrary God has nothing to do with this and the exchange rate of our currency should not be conflated with national pride. It is thinking like yours that has led us to this situation in the first place. The rupee will continue to fall as long as the economy is mismanaged.

  • If the exchange rate is market determined then there is guaranteed to be further depreciation because we have a higher inflation rate than our trading partners. The SBP’s reserves are also very low and the threat of FATF blacklisting is ever present. Our officials opinion on the FATF issue cannot be trusted. They’ve lied to us many times in the past. We must wait and see what the FATF says.

    Note also that tax revenues have not risen as far as expected. That means further government money printing to finance the fiscal deficit. This will be eventually reflected in high inflation, further pressure on the trade deficit since that money will flow towards imports and rupee depreciation.

  • Unbelievable.. I read that report and it was from the express tribune.. I am planning for an umrah so I sort of panicked that let’s buy the Saudi riyals right away.. Fortunately I couldn’t for some reason.. How a false biased reports can affect us and that through a supposedly reputable media group


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