The Pakistani rupee has been on a tear against the US dollar in recent weeks, gaining for the 26th consecutive day on Wednesday, October 12, 2023. The rupee closed at 224.50 to the dollar, up from 224.75 on Tuesday.
What are the Factors
The rupee’s rally is being driven by a number of factors, including:
Improved foreign exchange reserves
The State Bank of Pakistan’s foreign exchange reserves have increased by over $5 billion in recent months, thanks to inflows from remittances, exports, and foreign investment. This has helped to boost the rupee’s value against the dollar.
Reduced political uncertainty
The political situation in Pakistan has stabilized in recent months, following the formation of a new government in April 2023. This has boosted investor confidence and led to increased inflows of foreign capital.
Stronger economic growth
The Pakistani economy expected to grow by over 5% in 2023, its fastest pace in a decade. This being driven by strong growth in the manufacturing, construction, and services sectors.
The rupee’s rally is good news for the Pakistani economy. It will also help to reduce inflation and attract more foreign investment.
What are possible drivers?
Weaker US dollar
The US dollar has been weakening against other major currencies in recent months. This is due to a number of factors, including the Federal Reserve’s decision to slow down the pace of interest rate hikes.
Increased demand for Pakistani goods and services
The demand for Pakistani goods and services has been increasing in recent months, thanks to the global economic recovery. This has led to increased exports and foreign exchange earnings for Pakistan.
Speculative inflows
Some analysts believe that the rupee’s rally also being driven by speculative inflows from foreign investors. These investors are betting that the rupee will continue to appreciate in value against the dollar.
It is important to note that the rupee’s rally may not be sustainable in the long term. The rupee’s value ultimately determined by the forces of supply and demand in the foreign exchange market. If there is a sudden increase in the demand for US dollars or a decrease in the supply of Pakistani rupees, the rupee could depreciate in value.
Conclusion
The rupee’s recent rally is a positive sign for the Pakistani economy. It shows that there is growing confidence in Pakistan’s economic prospects. The government will need to continue to implement sound economic policies to sustain the rupee’s rally and boost economic growth.