Rupee-dollar parity could stretch beyond 81.50

The biggest challenge that the country is facing is to stimulate economy. IMF's downward revision of GDP growth to 2.5 percent, supported by SBP certainly does not bode well, as slowdown means severe cut in spending, fewer jobs, risk of rise in poverty. But IMF's major concern is how to bring down and defeat the inflation numbers rapidly, says Asad Rizvi of Currency Market Associates.
Inflation is the most threatening factor and mother of all the economic ills that the country is facing. There is a will to address the issue, but lack of commitment to burn out the root of the disease is the lingering factor. Today's suffering is due to large number of past factors, the rise in the global food prices, rising global oil prices, heavy government borrowing that led to printing of notes.
The global financial meltdown has also contributed to the country's woes. But a lack of fiscal and administrative measures combined with Central Bank's continuation of lax monetary policy over the years was the most damaging factor that ultimately led to a steep fall in growth rate to below 3 percent.
Inflation rate is now hovering a notch below 20 percent, while it also helped currency in circulation to push above Rs 1.2 trillion. Where is the tightening factor? SBP's web-site shows that International Reserves & Foreign Currency Liquidity position in Rs/Dollar swap is of $1.985 billion, which means rupee injection of Rs 150 billion?
Easing of CRR by 3 percent means injection of Rs 114 billion. Whereas, in last 6-years Commercial Bank's Advances against Deposits averaged around 75 percent, which needs to be pushed down to 70 percent. Net Foreign Assets are on a constant decline.
"A look at the Discount Rate that has been negative for an extended period of time tells us more about the cause of high inflation. The SBP looks comfortable, as it says that it's effectively managing its monetary policy, though it was not tight enough to contain inflation", he says.
Global excess liquidity could be the main cause of rising commodity prices all over the world, but we sat like a sitting duck for 6 long years hoping for a miracle to happen and to come to our rescue. Mother nature is beyond human control and it was only once that during this period Pakistan was blessed with 7 percent agriculture growth.
According to him, our biggest problem is that we have a deficit economy. Pakistan needs to turn that into surplus one. We have to do away with our current account deficit, as our exports remains a matter of grave concern. Not only can remittance fall due to job saturation in Middle East, global condition is also not conducive for FDIs.
High and luxurious import bill still remains a big threatening factor, as it is one of the major elements towards deficit economy. Hopefully, appropriate measures would be taken in the coming budget to ease the pressure created by imports. In short a country that possesses a negative savings ratio, which means spending surpassing the income would always struggle to meet its balance of payment.
Furthermore, savers need to be encouraged with attractive return, as countries with high savings ratio have low inflation. Pakistan's over 75 percent of the population is living hand to mouth.
Therefore, there is no quick fix solution to the inflation remedy. Hence, we support conditional cut in discount rate with hike in CRR with a ratio of 1:3 (One against Three) or simply hike in CRR or else NPLs would continue to surge and domestic prices would remain high. Moreover, rupee is bound to make some minor losses by the end of fiscal year due to economic slowdown and continued weakening of Asian currencies, Rizvi concludes.