There are economists who often underscore the need for PKR depreciation. There is a lack of understanding/knowledge about exchange rate and its working, which is debatable. Its working may vary from one country to another, but there is no single recipe that will suddenly help reap economic gains.
It is extremely important to understand that SBP for almost a decade is constantly intervening/purchasing USD from interbank and exchange houses on a regular basis. As per SBP website updated as of May 31, 2015, its International Reserves/Foreign Currency Liquidity position is a USD 1.720 billion short position that confirms my argument of central bank's frequent intervention, which is forcing rupee to remain weak. If SBP does not intervene through fresh purchase and rollover to buy USD from I/B market rupee would make a substantial gain.
As we often hear, I consider it a baseless argument that discount rate cut will add pressure on rupee. Since November 18, 2013 SBP has so far slashed discount rate by 300 basis points. On November 18, 2013, PKR/USD parity was 107.55 against 101.83 (July 24, 2015), which means rupee has not weakened as mostly argued; instead, rupee is now stronger by 5.3 percent.
Therefore, for real growth and well-being of the nation, SBP is required to define its purpose of policy stance and align rate cut with inflation, which will remain soft. I do not see excessive inflation pressure and my year end inflation target of 4.25-50 percent frequently quoted in Business Recorder remains unchanged.
It is required that SBP on an urgent basis should co-ordinate with Ministry of Finance and quickly slash PIB coupon rate by nearly 3 percent. Or else rate cut will remain futile exercise. Banks will continue to invest in government securities and central bank's policy stance will not serve the purpose.