ISLAMABAD: The Pakistani rupee is expected to weaken further, particularly with the country’s balance of payments position that is likely to remain weak for several more months, says Fitch Solutions.
The rating agency noted that a continued weakening in the rupee will have broader economic implications too. In the near term, it could exacerbate imported inflationary pressure and may eventually result in steeper policy rate hikes from the State Bank of Pakistan (SBP).
These factors would only exacerbate Pakistan’s challenging economic outlook. “We currently expect the economy to contract by 0.3 percent in fiscal year 2022-23. Equally; however, the rupee’s devaluation will help Pakistan with securing further disbursements from the International Monetary Fund (IMF), which would be a positive for the longer-term outlook as it would help ease Pakistan’s balance of payments strains,” it added. The rating agency further stated that one condition under the IMF’s External Fund Facility agreement is for Pakistan to move towards an exchange rate regime that is determined by market forces.
Intra-day update: rupee maintains positive momentum against US dollar
The agency noted that the rupee’s devaluation was triggered by the decision among local foreign exchange companies to remove the self-imposed cap on the exchange rate on January 25. The State Bank of Pakistan (SBP) initially intervened, but the significant depreciation in the rupee is a clear sign the authorities have effectively loosened their grip on the currency.
Fitch Solutions mentioned that their current forecast for the rupee to reach Rs248 per dollar by year-end is therefore now looking out of date. The agency said that there remains a “considerate amount of uncertainty at this juncture; therefore, it is difficult to gauge the extent to which the latest devaluation has caused investor sentiment to soar further.
“We will; therefore, firm up our rupee forecasts over the coming weeks, once the dust settles,” said the agency.
Copyright Business Recorder, 2023
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