PKR’s REER fell to 90.9, indicating more appreciation.
The local currency reversed a three-day negative trend on Monday, rising 0.72% (or Rs1.58) to close at Rs220.89 in the interbank market.
The rupee has somewhat recovered after Finance Minister Ishaq Dar threatened to take legal action against anyone who hoard foreign currency and manipulate the exchange rate. Dar predicted that during the weekend, the fair value of the rupee would be between Rs180 and Rs200 versus the US dollar.
More unexpectedly, the real effective exchange rate (REER), which was 94.4 in August 2022, decreased to 90.9 in September 2022. This means that there is room for the local currency to appreciate even further.
The rupee also took home the prize for Asia’s best performing currency in October, according to a local brokerage firm that used Bloomberg data.
The Asian Development Bank (ADB) inflows of $1.5 billion are the only positive events to have occurred throughout the country’s fall in foreign exchange reserves over the previous 10 months. Importantly, export revenues are declining, there is a severe lack of US dollars on the open market, and unlicensed hawala-hundi operators are allegedly smuggling foreign cash out of the nation.
Additionally, imports are regulated through administrative measures, commodity prices globally have remained high, domestic industrial units are reporting closures in full or in part, floods have partially harmed the agronomy, and overall economic growth is revised down to 2% in the current fiscal year of 2023 from 3-4% for the year prior to the floods.
Dar appears to have started manipulating the rupee’s exchange rate again, which has made imports less expensive and increased the likelihood of export revenues declining. However, the circumstance may eventually cause the budget and current account deficits to grow.
The currency has lost 1.25% (or Rs2.47) over the previous three working days, falling to Rs222.47 on Friday from Rs219.73 on Tuesday.
Samiullah Tariq, Head of Research at Pak-Kuwait Investment Company (PKIC), stated that “The rupee would retain a range of Rs215-220 against the US dollar in the short-run” in light of the pertinent developments.
“The upcoming data on the nation’s import, export, and remittances for the month of October 2022 will provide the rupee-dollar exchange rate a new direction for the near future,” he continued.
The trade imbalance will be balanced if import payments remain low and export earnings continue to decline, according to Tariq.
“As far as the REER appreciates,” he said, “it should be hovering around 94 at the current value of the rupee at Rs220.89 against the greenback,” he added. The REER measures the value of the rupee against a basket of currencies of Pakistan’s trading partners.
“Up until Dar’s return as finance minister in September 2022 after a five-year absence, the central bank largely maintained the REER at 96-97. Five years prior, he had kept the REER at or above 120, according to Tariq.
Alpha Beta Core (ABC) CEO Khurram Schehzad made a brief statement in which he stated, “According to the REER index, the rupee may gain further strength.”
For the REER, it is assumed that the range of 96–97 is at a good level. In developing economies like Pakistan, a REER above 100 is dangerous since it makes imports less expensive and exports more expensive.
Muhammad Sohail, CEO of Topline Securities, posted on social media that “the rupee appreciated 3.3% against the US dollar in the previous month of October 2022. In a similar vein, according to Bloomberg, the rupee had one of the best months in Asia during the month of October 2022.
