The Pakistani Rupee (PKR) showcased a notable appreciation against the US dollar in Wednesday’s interbank session, marking a positive shift in the currency’s performance. The Rupee closed at PKR 278.79 per USD, improving from the previous session’s closing of PKR 279.08 per USD.

This resurgence is partly due to exporters selling dollars forward, which has led to a reduction in premiums. Furthermore, Pakistan has achieved significant milestones by meeting all Structural Benchmarks, Qualitative Performance Criteria, and Indicative Targets for a crucial $1.1 billion tranche, as revealed by the finance division.


PKR INTERBANK EXCHANGE RATES ON MARCH 13, 2024


USD TO PKR
Country NameSymbolRate
United StatesUSD278.79
EurozoneEUR304.74
United KingdomGBP356.66
JapanJPY1.8869
United Arab EmiratesAED75.90
Saudi ArabiaSAR74.33
AustraliaAUD184.39
CanadaCAD206.69

 

INFLATION AND POLICY RATE DYNAMICS

According to Goldman Sachs’ GSDEER framework, the PKR is undervalued by nearly 20% on a 12-month horizon, boasting a potential 26% nominal carry. This undervaluation, coupled with the anticipation of positive real interest rates amid declining inflation rates, presents a promising outlook for the Rupee’s value increase.

For the first time in over three years, the real interest rate (RIR) is expected to turn positive this month, thanks to a favorable base effect and high interest rates contributing to a slowdown in inflation. The consumer price index (CPI) is poised to fall below the 22% policy rate in March if monthly inflation increases by less than 2.82%.

Inflation recorded a 20-month low of 23.06% in February from the previous year, with a minimal monthly price rise. This development, along with the current policy rate maintained at 22% since June 2023, fuels market speculation about the onset of monetary easing.

MONETARY POLICY EXPECTATIONS

The State Bank of Pakistan may defer rate reduction until at least April, even though the next rate decision is set for March 18. This cautious approach is consistent with the central bank’s methodical approach to managing both inflation and the economic recovery.

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