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The Recent Surge In Pakistan’s Rupee Value Against The US Dollar: A Short-Lived Trend?
(CTN News) – In recent weeks, the Pakistani Rupee (PKR) has been on a roller-coaster ride, gaining strength against the US Dollar (USD) in the interbank market.
The latest figures from the State Bank of Pakistan (SBP) reveal a significant appreciation of 0.31%, with the PKR closing at Rs290.86 against the USD, marking a Re0.9 gain from Friday’s close of Rs291.76.
While this sudden surge in the rupee’s value has generated optimism among market observers, it is essential to delve deeper into the factors driving this trend and to ponder whether it is sustainable in the long run.
Interbank closing #ExchangeRate for today https://t.co/Yokn6FlUq5#SBPExchangeRate pic.twitter.com/wMTTSaWu4K
— SBP (@StateBank_Pak) September 25, 2023
Cracking Down on Currency Smuggling and Illegal Trade
The primary catalyst behind the recent appreciation of the PKR appears to be the Pakistani government’s rigorous crackdown against foreign currency smugglers and illegal currency trade.
Capital market expert Saad Ali emphasizes that this surge is not rooted in fundamental economic changes but rather in administrative and enforcement measures.
While the crackdown has led to a tangible increase in the rupee’s value, Ali warns that this appreciation might not be sustained over an extended period.
US Dollar: Temporary Respite or Long-Term Trend?
Many are skeptical about the long-term prospects of the PKR’s appreciation. Saad Ali, for instance, believes that the PKR’s value might stabilize around Rs285 in the coming days, cautioning against the expectation of a significant drop to Rs250.
This sentiment echoes the sentiments of Sindh Governor Kamran Khan Tessori, who predicted a further decline in the USD rate but not to the extent of Rs250-255, suggesting a more realistic target of Rs278-280.
The recent gains in the rupee’s value might indeed be short-lived if we consider the broader economic context. Structural economic challenges, inflationary pressures, and fiscal deficits still plague Pakistan’s economy.
These fundamental issues are unlikely to be resolved overnight and can exert downward pressure on the PKR’s value in the long term.
External Factors at Play
Apart from internal measures, external factors also influence currency exchange rates.
Shahid Ali Habib, CEO of brokerage house Arif Habib Limited (AHL), points out that the PKR’s remarkable gains, amounting to a 5.3% or Rs15.3 appreciation against the USD in just thirteen trading sessions, are partly attributed to strict measures against Afghan transit and hawala.
However, he underscores the importance of external flows materializing in a timely manner to sustain this momentum.
It’s important to recognize that external factors, such as international economic conditions, geopolitical events, and global trade dynamics, can have a profound impact on the PKR’s value.
Therefore, while internal measures can contribute to short-term stability, the rupee’s long-term trajectory is interconnected with the broader global economic landscape.
Conclusion
The recent surge in the Pakistani Rupee’s value against the US Dollar is undoubtedly a welcome development for Pakistan’s economy. However, it is crucial to approach this trend with caution.
While administrative crackdowns and enforcement measures have played a significant role in this appreciation, they may not be sufficient to address the underlying economic challenges that have historically caused the PKR to weaken.
Furthermore, external factors remain unpredictable, and Pakistan’s currency exchange rates are not isolated from the global economic stage. As a result, the long-term sustainability of the rupee’s gains will depend on a combination of internal reforms, prudent economic policies, and favorable external conditions.
As investors and observers closely monitor these developments, it is advisable to maintain a realistic outlook on the PKR’s future value and recognize that currency markets can be volatile and subject to rapid shifts.
While Pakistan’s currency may continue to appreciate in the short term, the path to long-term stability will likely be more complex and multifaceted, requiring a comprehensive approach to address economic challenges both at home and abroad.