The downward trajectory of Pakistan's rupee continued as the currency depreciated another 0.02% to close at 174 for the first time against the US dollar in the inter-bank market on Friday.
As per the State Bank of Pakistan (SBP), the PKR closed at 174.00 against the USD, a day-on-day depreciation of 4 paisas or 0.02%. On Thursday, the PKR had dropped to the-then record low of 173.96.
The PKR has lost 12.5% of its value against the greenback since its recent high in May. It has depreciated by 9.5% during the ongoing fiscal year alone, raising concerns over inflation.
Samiullah Tariq, Head of Research and Development at Pakistan Kuwait Investment Company Limited, said that the exchange rate movement is “an outcome, not a symptom”, pointing to how the rupee's depreciation helps economies know the problem.
"Why is it that our country is so fascinated with exchange rate? he tweeted. "It’s an outcome, not a symptom. The problem is the structural gap between exports and imports and the underlying factors responsible for this trade deficit."
Pakistan's rupee closes near 174 as depreciation continues
Tariq looked to convey the benefits of a flexible exchange rate regime, saying that it "lets us know the problem, and acts as a stabiliser or shock absorber from creation of a bubble. It gives the confidence to exporters regarding higher future sale price.
"Modern economies works on signals. Weaker exchange rate gives a negative signal to importers and positive signal to exporters. Exporters can plan to expand for long term."
Tariq concluded that a flexible exchange rate could sharpen the competitive advantage of a country and can increase exports significantly while stagnating imports, “thereby eliminating the imbalance between exports and imports”.
The flexible market-based exchange rate regime was introduced by the central bank in June 2019. Under this regime, the SBP does not suppress an underlying trend in the exchange rate and any interventions are limited to address disorderly market conditions.
However, the government has come under criticism over the recent rupee depreciation with the opposition stating that this has affected the common person who has had to deal with higher inflation.
CPI inflation already hit a three-month high at 9% in September 2021, up from 8.4% in August. The CPI has averaged 8.6% for the first quarter (July-September) of the ongoing fiscal year.
Inter-bank market rates for dollar on Friday
BID Rs 174
OFFER Rs 174.10
Open-market movement
In the open market, the PKR remained unchanged for buying while losing 10 paisas for selling against USD, closing at 173.50 and 174.30, respectively.
Against Euro, the PKR remained unchanged for buying while losing 8 paisas for selling, closing at 200.60 and 202.20, respectively.
Against UAE Dirham, the PKR gained 10 paisas for buying while remaining unchanged for selling, closing at 49.30 and 49.85, respectively.
Against Saudi Riyal, the PKR lost 80 paisas for buying and 1.55 rupees for selling, closing at 46.50 and 47.70, respectively.
Open-market rates for dollar on Friday
BID Rs 173.50
OFFER Rs 174.30
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