2023 was no walk in the park for the Pakistani Rupee (PKR), and a new report suggests that 2024 might be even rougher. The PKR has been on a downward spiral for the past seven years, and in 2023 alone, it took a 20 percent hit against the US dollar, surpassing the average falls of the past 5 and 10 years.
According to a report from Topline Securities, this significant drop is due to external payment risks and other factors, leading them to predict that in the interbank market, the PKR/USD could reach Rs. 310 by June 2024 and Rs. 325 by December 2024.
Adverse effects from external financing gaps, challenging global financial markets, and local political instability have put immense pressure on foreign exchange (FX) reserves, further impacting the PKR.
The report highlighted the rollercoaster ride of the PKR in 2023, falling by 21 percent in the first half before a 1 percent gain in the second half, post the IMF’s Stand By Agreement (SBA). In the open market, PKR saw a 17 percent fall in 2023, with a 2 percent gain in the second half.
Interestingly, the gap between open market and interbank rates, which was at a high of 9 percent in May 2023, is now nearly zero. The caretaker government took measures to address this, tightening security, closing illegal exchange companies, and increasing the minimum capital requirement for exchange companies.
As a result, the PKR gained strength in the interbank market, appreciating by 9 percent, while in the open market, it increased by 16 percent from September 04, 2023, to December 27, 2023.
Despite these efforts, the report indicates that 2024 might bring more challenges for the PKR. The State Bank of Pakistan (SBP) Governor stated that any decision to reduce the policy rate would be data-driven, considering factors like inflation and PKR movement. The report expects a 700 bps cut in the policy rate in 2024, bringing it down from the current 22 percent to 15 percent, anticipating a decline in inflation numbers.
With uncertainties looming, the report paints a cautious picture, suggesting that tough times may continue for the PKR in the coming year.
