Plummeting Rupee

The resurging current account deficit, rising imports, slumping exports and remittances, as well as price inflation and shrinking foreign currency reserves, are exerting renewed pressure on the Pakistani rupee. These factors, combined with reduced capital inflows, have resulted in the rupee hitting new record lows. To bring stability to the market, the State Bank of Pakistan must address the interbank and black-market rate disparity, which continues to be a cause for concern.
In the interbank market, the rupee reached Rs299.64 to a dollar, highlighting the struggle to align with the open market rate. The SBP aims to reduce the gap between these rates to less than 1.25 percent, as per IMF directives. However, the difference currently hovers around 5 percent, indicating a need for greater stability in the market.
While analysts had warned of the temporary nature of the currency’s earlier strengthening, volatility was inevitable without additional official bilateral and multilateral inflows. Although inflows are anticipated in the near future, it is crucial to recognise the underlying structural issues within the Pakistani economy. These issues have prevented the country from breaking free from the cycle of volatility and instability.
The inability of the SBP to bring about immediate stability further highlights the challenges encountered in managing the currency market. While a surge in the demand for foreign exchange for imports has played a role in the rupee’s decline, it is important to address core structural issues, as the overall political instability in the country exacerbates the ongoing currency crisis. Achieving clarity and confidence regarding the future trajectory of the economy and the rupee’s stability will only come after resolving the political and constitutional crisis through general elections.
To overcome the challenges faced by the Pakistani rupee, it is imperative to address the structural issues within the domestic economy that perpetuate this cycle of instability. Furthermore, measures must be taken to encourage and facilitate investment, promote exports, and reduce the current account deficit. Addressing the root causes will not only stabilise the rupee but also pave the way for sustainable economic growth in Pakistan.

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