A positive shift

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The recent dip in the dollar price below the interbank rate signals a positive shift in Pakistan’s economic dynamics, reflecting ample liquidity and low demand. The State Bank of Pakistan’s reported rise in the rupee, with a week-on-week increase of 0.21 per cent, is a testament to the government’s stringent actions against unauthorized money changers and currency-related mafias. Over the past weeks, the local unit has displayed resilience, improving by Rs3.77 in the last five weeks and a substantial Rs5.03 in the current fiscal year 2023-24. Despite a depreciation of Rs52.42 earlier in the year, November witnessed a notable turnaround as the rupee gained against the US dollar, attributing this success to government measures and crackdowns on illicit hundi-hawala setups.
The government’s proactive stance, including strengthened regulatory rules for exchange companies and ongoing efforts to curb smuggling and hoarding of foreign exchange, has played a pivotal role in reshaping currency trading in the open market. According to a news report published on these pages, Commerce Minister Dr Gohar Ejaz has rightly pointed out the role of transit goods smuggling from Afghanistan as a significant factor contributing to the depreciation, emphasizing the government’s success in curbing the issue.
The State Bank of Pakistan’s intervention and measures have been instrumental in the currency’s positive trajectory, exemplified by the dollar’s decline from Rs330 to Rs280 without direct intervention. The global recognition of the rupee’s appreciation, with Bloomberg predicting it as the top performer in September, adds to the credibility of the government’s economic policies.
Noted economists observe that the winning streak of the rupee will depend on future economic fundamentals. In the short run, we may see the rupee strengthening due to ongoing measures taken by the regulators for compliance with laws.
Currency exchange rates can impact merchandise trade, economic growth, capital flows, inflation and interest rates. Any appreciation by the rupee would be a great boost to the economy, not only rejuvenating the business and manufacturing activity but also reducing the country’s import bill.
Structural reforms introduced by the State Bank of Pakistan in the Exchange Companies’ sector and the active engagement of leading banks in foreign exchange business further contribute to the positive outlook. Economists note that the rupee’s winning streak hinges on future economic fundamentals, and the ongoing regulatory measures are expected to strengthen the currency in the short run.
The potential for a strengthened rupee brings optimism, not only rejuvenating business and manufacturing activities but also reducing the country’s import bill. The interconnectedness of currency exchange rates with merchandise trade, economic growth, capital flows, inflation, and interest rates underscores the broader impact of this positive trend on Pakistan’s economic landscape. As the rupee gains ground, it presents a promising scenario for economic recovery and sustainable growth.