The Pakistani rupee has reached a historic low of 300.37 against the US dollar in the interbank market due to increased demand and a dollar liquidity crunch caused by dropping exports and remittances, with experts suggesting that the interbank market is trying to catch up with the kerb market.
Pakistani authorities have requested the IMF to review the condition of keeping the difference between interbank and open market dollar rates below 1.25% due to the continuous fall in the exchange rate.
The depreciating exchange rate of the Pakistani rupee against the US dollar is leading to a potential economic disaster, with increased inflation, higher prices for petroleum and fuel, and a rise in poverty and unemployment.
The foreign exchange reserves of the State Bank of Pakistan fell below $8 billion for the first time in five weeks, dropping to $7.93 billion, which may pose challenges as the country faces significant debt servicing payments.
Short-term inflation in Pakistan increased by 25.34% on a year-on-year basis due to a surge in prices of kitchen items, although it decelerated from the previous week's rate of increase.
The Pakistani rupee weakened further against the US dollar in the interbank market due to higher demand and uncertainty, while the open market remained stable; however, insiders noted that currency dealers were selling the dollar at higher rates in the open market.
Pakistan's external vulnerabilities are set to worsen due to shrinking dollar inflows and increasing debt servicing, putting pressure on foreign exchange reserves and potentially leading to their depletion.
Pakistan's recent financial aid and investment partnerships, including with the IMF, Saudi Arabia, UAE, and China, provide temporary relief from economic challenges, but the country must address issues such as low growth, high inflation, unemployment, and limited foreign exchange reserves through deregulation, investment in education and technology, tax reform, privatization, and political stability to achieve lasting prosperity.
The Pakistani rupee has fallen below 300 to a US dollar due to factors such as the rise of the dollar, uncertainty surrounding general elections, and a political/judicial/constitutional crisis, resulting in eroded business confidence, increased inflation, and reduced industrial output.
The consistent devaluation of the Pakistani rupee is causing inflation and forcing the central bank to raise interest rates, leading to concerns about the economy and market confidence.
Pakistan's inflation rate remained above target in August at 27.4%, driven by reforms linked to an IMF loan that have fueled price pressures and declines in the rupee currency.
The recent bloodbath in the stock market and worsening economic conditions in Pakistan are attributed to electoral uncertainty, depreciating rupee, and concerns over inflation and interest rates.
Pakistan's economic crisis is worsening under the caretaker government, as LPG prices increase by 20% and the rupee continues to fall.
The current economic crisis in Pakistan is driven by high inflation, mismanaged policies, and failure to ensure price stability, leading to a weakened currency and a struggling middle class, but implementing radical reforms such as demonetization and swapping out foreign currency debt can potentially alleviate the situation and revive the economy.
The International Monetary Fund (IMF) has rejected Pakistan's proposal for tariff adjustment or additional subsidy to provide relief in electricity bills, despite the government's claim of improved bill collection; Pakistan has requested the IMF to allow the staggering of upcoming quarterly tariff adjustments and Fuel Price Adjustments over the next four to six months.
The rupee rebounded in the open market as a crackdown on the informal currency market helped narrow the gap between interbank and open-market rates, bringing it closer to the IMF's target of 1.25%. The State Bank of Pakistan has also introduced structural reforms for exchange firms and increased the minimum capital requirement, while ordering banks to set up separate entities for forex transactions.
Millions of Pakistanis are facing the devastating consequences of an unprecedented economic crisis, with rising inflation, soaring fuel and electricity prices, and a weakening currency, leaving low-income households struggling to make ends meet.
Pakistan's interim government is prioritizing economic revival and fulfilling international obligations, including agreements with the International Monetary Fund (IMF), to address the stagnant economy and financial issues. They aim to improve the overall business and investment environment, increase inflow of dollars from multilateral institutions, and reduce expenditures while upholding international agreements.
The Pakistani rupee's rise against the dollar is attributed to a crackdown on hoarding and illegal outflows of the greenback as well as increased vigilance in the Afghan transit trade.
Pakistan's central bank is expected to raise interest rates to address inflation and bolster foreign exchange reserves, following a series of rate hikes earlier this year in response to economic and political crises.
The Pakistani military's crackdown on the black market has led to a significant influx of dollars into the interbank and open markets, resulting in the recovery of the Pakistan rupee and its strengthening beyond the official rate, with the campaign being credited to army chief General Asim Munir.
The Pakistani rupee has depreciated significantly in the first three weeks of the interim government's tenure, reaching a record low and making it the worst-performing Asian currency this quarter, due to factors such as a change in government and high inflation. The State Bank of Pakistan is implementing measures to address the economic challenges, including reforming the exchange rate and modernizing the banking system.
The State Bank of Pakistan has announced that it will maintain its key policy rate at 22%, citing a continuing declining trend in inflation, improved agricultural outlook, and recent administrative and regulatory measures to address supply constraints and illegal activity. The bank hopes that inflation will subsequently decline in October.
