‘Barbenheimer’ fever spread like the ‘jeelay ini muhabbtaan’ meme in Pakistan as Christopher Nolan’s Oppenheimer and Greta Gerwig’s Barbie swept Pakistan in the most bizarre way imaginable. You know the details, let’s skip that part.
Meanwhile, Pakistan’s troubled currency broke below the psychologically key level of Rs. 290 per US dollar on Tuesday, as market participants saw no end in sight to the drop.
The rupee has plummeted over Rs. 14.5 against the US dollar this month from 275.44 on July 3rd to 290 at 12 PM today. At 12:15 PM, it rebounded to 289 before easing off to the 288 level once again at 1 PM.
Facing an inflation rate of close to 30 percent, Pakistanis seeking safe havens for their savings have been hoarding dollars, other hard currencies, or gold, while most opt for informal channels for trade, suggesting further headwinds for the PKR.
The imposition of pro-IMF taxes in the new financial year by incumbent Finance Minister Ishaq Dar has harmed Pakistan’s economic forecasts for growth by limiting citizens/companies to low returns. Meanwhile, essential imports and access to foreign currency remain thorny, a few analysts said in a collective note to this correspondent on Monday.
Since November 2022, bailout talks between Pakistan and the International Monetary Fund to curb the liquidity crisis in exchange for the levying of heavy taxes and submitting to the will of the West have been a dismal affair, worsening economic expectations for Pakistan’s future. Over the last six months, the PKR has slumped nearly 23 percent in value.
Interest Rate, Rupee Expectations
Meanwhile, the central bank is quietly opening up new avenues to ease access to foreign exchange and increase the volume of official transactions while at the same time planning to raise the official interest rate by 100-150 basis points to ~23 percent on Monday (31 July).
“The rate set in this exchange will become the market’s rate. It should be free from expectation factors that do not reflect our purview of the country’s financial situation,” analysts said in a collective note to this correspondent.
“Inflation is falling but the cost of surviving is still far too high,” it added. New data this week and a weaker PKR mean base inflation is falling “as expected but the cost-of-living inflation (CPI) is driving actual change”.
Further weakness in the PKR could push the central bank closer to considering an intervention in the foreign exchange market despite IMF warnings, according to the note, but the threatening possibility seems “more likely” than actually talking about it.
Currency intervention is not the first solution the State Bank of Pakistan would look to in order to bolster the PKR, but “it’s definitely a tool that they have in their toolbox,”, a financial risk management director based in Singapore said. “But a currency that continues to weaken could prompt bankers to employ that tool or start dipping their hands in the dark ink of… Halwa? Sorry, Hawala market,” he added.
“If the PKR slide would sort of accelerate … below 295 by end-July or as bad as 305 interbank next month, then maybe your State Bank would view it differently and say, ‘OK, we’re going to put an end to this mild or severe panic in the market’,” he said. “I would definitely not rule out interventions, but it’s not something they would like to do openly while IMF keeps watch from afar,” he added.
The writer is a Business Analyst at ProPakistani and these views do not necessarily reflect the opinion of the company or its owners.
