This week, the Pakistani Rupee (PKR) has seen notable appreciation against the US Dollar, climbing by 29.4 paisa in the interbank market to close at PKR 278.74, up from last week’s PKR 279.04. This positive movement, highlighted by a rise of 2.92 paisa in Friday’s session, indicates growing confidence in the nation’s currency. A day earlier!

Several factors have contributed to the Rupee’s strengthening, including the increased sale of forward Dollars by exporters, which has led to a decrease in premiums. Additionally, an analysis by Goldman Sachs using their GSDEER framework suggests the Rupee is undervalued by nearly 20% over a 12-month period, projecting a potential nominal carry gain of approximately 26%.

 


PKR INTERBANK EXCHANGE RATES ON MARCH 15, 2024


USD TO PKR
Country (Symbol)Rate
United States (USD)278.74
Eurozone (EUR)303.33
United Kingdom (GBP)355.17
Japan (JPY)1.8779
United Arab Emirates (AED)75.90
Saudi Arabia (SAR)74.33
Australia (AUD)183.13
Canada (CAD)205.91

 

THE TURNING TIDE OF REAL INTEREST RATES

For the first time in over three years, a positive shift in Real Interest Rates (RIR) is anticipated this month, supported by a favorable base effect, historically high interest rates, and slowing inflation. February witnessed inflation falling to a 20-month low at 23.06%, with a marginal monthly price increase of just 0.03%.

Looking forward, if inflation continues to decrease and consumer prices rise by an average of 1% monthly for the rest of the fiscal year, annual inflation could drop to around 19% by the end of June. This development could pave the way for the State Bank of Pakistan (SBP), which has held the policy rate at 22% since June 2023, to contemplate easing monetary policy in the near future.

ANTICIPATION AHEAD OF THE IMF REVIEW

The anticipation is building as Pakistan enters the final review of its Stand-By Arrangement (SBA) with the IMF, with successful negotiations potentially releasing a crucial $1.1 billion tranche, influencing both currency valuation and economic steadiness.

Beyond the USD, the Rupee also appreciated against the Euro, British Pound, and Japanese Yen, while showing slight variations against the Chinese Yuan, Saudi Riyal, and U.A.E Dirham, reflecting its overall strength this financial year with a 7.25 rupees or 2.6% appreciation against the Dollar.

As the financial community awaits the SBP’s upcoming monetary policy decision, opinions are divided on the best approach. Nonetheless, there is a cautious optimism prevailing, buoyed by positive economic indicators and the prospects for additional monetary policy easing.

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