KARACHI: The rupee is unlikely to depreciate during the rest of this fiscal year as inflation leaves no room for decline, experts said on Saturday.
The exchange rate appears to be stable as the rupee is below 280 rupees against the US dollar, but some analysts believe it could reach 310 rupees by the end of this financial year.
“The fiscal year started at 286 for USD/PKR. Judging by past trends, depreciation of 7% to 10% per year is common, which supports exporters and reduces the REER (Real Effective Exchange Rate). We will keep it close to par.” This means the closing price at the end of June will be around 310 yen to the dollar,” said Tresmark, a financial terminal that provides real-time market rates, charts and financial data. said Faisal Mamsa, CEO.
“As of today, the rupee has actually appreciated by about 2%, so a significant decline is unlikely,” he added.
Analysts say persistent inflation leaves no room for currency depreciation
However, most analysts and researchers believe that relentless inflation has now gripped the entire economy and every effort is being made to deal with this uncontrollable economic enemy.
Not only is inflation not going away, all other policies are aimed at normalizing inflation. This is a global problem as most countries prioritize inflation over economic growth. This is also reflected in government policy. Economic growth has been hurt by keeping interest rates at 22% to combat inflation.
When the rupee depreciates, the imported inflation component increases. To avoid this, policies were adopted to strengthen the local currency, analysts said. This is part of the established “reverse currency war” aimed at curbing inflation.
The general elections scheduled for February 8 also add uncertainty to the current economic scenario. Analysts say the new government is unlikely to shake things up unless inflation falls significantly from December’s 29.7%. As a result, the rupee will be heading towards a soft close by the end of June this year.
Despite encouragement from the government, exporters have not been able to improve their performance. The government is seeking to fix electricity prices for the industry at 9 cents per watt, which will ultimately help exporters. However, the plan requires approval from the IMF.
SS Iqbal, a money market expert and dealer, said, “This high cost of production has put immense pressure on national banks to reduce interest rates, but unpredictable inflation has “The door to lowering interest rates in the next monetary policy is closed.” .
He said the State Bank is expected to announce monetary policy on Monday, but most analysts expect no changes to interest rates, especially because of high inflation. However, the central bank has said it expects inflation to decline in the second half of this year.
Published at Dawn on January 28, 2024