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The idea about 2023 Was Bad for Rupee; New Report Suggests 2024 Will be Even Worse

Since 2007, the Pakistani Rupee has been under constant pressure. In 2023, the PKR dropped 20 percent against US$ despite a slight recovery in recent months.

Topline Securities said in a report that this 20 percent decline in 2023 will be higher than the average annual fall of 13 percent over the past five years and 8 percent for 10 years. The report, which takes into account Pakistan’s external payments risk and other factors in its analysis, predicts that PKR/USD on the interbank markets will reach Rs. The report states that PKR/USD on the interbank market will reach Rs. The brokerage house stated in its report that it expects to reach 325 by the end of December 2024.

External financing gaps, global financial market challenges, and local political instabilities have exacerbated the pressure on the PKR.

Before the Stand-By Agreement (SBA) with IMF, PKR dropped by 21 percent in 1H2023, from Rs. In 1H2023, before the Stand By Agreement (SBA) of the IMF, PKR fell by 21 percent from Rs. 286 US$ against, while in 2H2023, the currency gained 1 percent. After the IMF’s SBA, it rose from Rs. 282 post-IMF’s SBA.

On the open market, PKR dropped 17 percent from Rs. In 2023, the PKR fell 17 percent from Rs. In 2023, it will be 284 to Rs. In the first half of 2023, it fell by 19 percent. In 1H2023, it declined by 19 percent from Rs. In 2H2023, PKR grew 2 percent, from Rs. In 2H2023, the PKR gained 2 percent from Rs. 284 US$ to Rs.

In May 2023, the premium on the open market reached a peak of 9 percent (or Rs. In May 2023, the premium on the open market was at a high of 9 percent or Rs. It has been around 1-2 percent in the past. According to the IMF Structural Benchmark, the government requested that the average difference between the open market and interbank rate not exceed 1.25 percent for any consecutive five business day period.

Speculations that the non-political setup of the caretaker regime might allow the currency’s value to drop further pushed the PKR even lower when the caretaker took over on August 14, 2023. PKR dropped by another 6 percent (from Rs. The PKR fell by 6 percent (from Rs. Interbank slid by 10 percent (from Rs. From August 14, 2023, to September 04, 2023, the Rupee fell by 10 percent (from Rs. From August 14, 2023, to September 4, 2023, the USD will be traded on the open market at 328.

The USD rally after August 14, 2023, was driven mainly by the black and open market, where the premium (open-market vs. interbank rate) increased between 1-2 percent up to 8-9 percent.

In light of this trend, both the caretaker and permanent governments, as well as the State Bank of Pakistan, took a number of measures to reduce the demand on the open market. These measures included

  1. To prevent currency smuggling along the border, security has been tightened.
  2. Close exchange companies that are involved in illegal activity
  3. Minimum capital requirement increased from Rs. Exchange companies must now have a minimum capital requirement of Rs. Exchange companies will receive 500 million rupees.

These measures have led to a 9 percent appreciation of the PKR on the interbank markets, from Rs. As a result of these measures, the PKR has gained strength on the interbank market and appreciated by 9 percent from Rs. 282 US$ to Rs. On the open market, the PKR is up 16 percent from Rs. The report stated that the PKR increased from Rs. The report stated that 284 would be the case on December 27, 2023.

According to SBP’s Real Exchange Rate Index (REER), the PKR is undervalued. SBP’s November 2023 REER Index stands at 98.18, compared to the 10-year average of 106.6.

In 2023, the policy rate will increase by 6%, and T-Bills will rise by 4%.

According to the report, Pakistan experienced a record-high average inflation rate in 2023 of 31 percent, primarily because of an increase in the prices of food, gas, electricity, and local fuels (Petrol, Diesel).

SBP, in response to the increasing inflation trend has increased the policy rate 600 basis points from 16 percent (in December 2022) to a rate record of 22 percent (in June 2023).

The expectation was that the SBP would continue to tighten its monetary policy in order to curb inflation and manage Rupee. Since July 2023, however, the SBP kept the policy rate at 22 percent, citing positive interest rates in the future.

The report stated that this decision was based on the expectation of a significant decline in inflation in 2HFY24 due to contained aggregate demand and supply constraints, moderated international commodity prices and favourable base effects.

SBP Governor at the post-MPC Meeting on December 12, 2023 highlighted that the decision will be based on data, such as inflation and PKR movements.

We expect the average inflation rate for FY24 to be between 20-22 percent, while the central bank has projected a range of 20-22 percent.

The yields on T-Bills for 2023 have increased by 415-439bps. Rates are now at 21,08 percent, 21,38 percent, and 21.15%, respectively, for 3, 6, and 12 months. In the last three months, yields fell by 270-358bps from their September 2023 peak, which indicates that market participants expect a rate cut in 2020.

The yield on the 3-year Pakistan Investment Bonds increased by 92 bps in 2023 to 16.56 percent but also declined from its peak of 21,16 percent in September.

The report predicts that the rate of interest will be reduced by 700 basis points in 2024 from 22 percent to 15 percent due to the anticipated decline in inflation.

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