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Most Pakistanis See Near-Term Rupee Recovery A Disaster

Most Pakistanis see any near-term big gains for the Pakistani Rupee (PKR) against the US Dollar as a disaster and would predict it fall below 300/$. Thanks to a highly contentious report ProPakistani did last week on predictions for the PKR, the chatter on social media was recently buzzing with gossip about whether the currency would rise to the 220-230 range against the USD by early 2025. Many pointed out that such expectations are in direct contradiction with the Real Effective Exchange Rate (REER), which currently registers above 102. They said the PKR is currently overvalued and a Rs. 50 gain in the next 9 months would draw further suspicion of forex manipulation. Negatives Some cautioned that a rise to the 220-230 level could spell disaster for exporters and hurt government efforts to boost exports. Moreover, with rising tensions in the Gulf and the prophetic specter of conflict between Iran and Israel looming, they said crude oil prices could surge to $150-160 which rules out USD depreciating again st the PKR. A few traders pointed out pressures on imports and why recent improvements in the Current Account Deficit shouldn't be celebrated. The recent surge in oil prices, compounded by geopolitical uncertainties in the Middle East, threatens to further strain the trade balance and widen the deficit. Notably, Pakistan's trade deficit narrowed down by 25 percent to $17 billion in the first nine months (July-March) of FY24 compared to $22.7 billion in 9MFY23. One individual claimed that a 16 percent disparity exists between the inflation rates of the United States and Pakistan which alone is poised to exert downward pressure on the PKR. He said the road to a logical PKR recovery hinges on Pakistan's ability to achieve a sustainable current account surplus while maintaining inflation at low single-digit levels-a feat contingent upon comprehensive structural reforms. However, this prospect appears dim in the near to medium term which rules out any gains even remotely close to Rs. 250/$. Positives Convers ely, others argue that the current REER reading stems from excessive depreciation due to a shortage of dollars. They argued that rupee appreciation could alleviate inflationary pressures and narrow the inflation differential between the PKR and USD. When contacted for a comment, a broker told this analyst that future government policies aimed at tightening the supply of rupees could bolster its value against the dollar provided inflation continues to fall and exports revive. The major consensus is king, in this analyst's view. Unless market forces are tethered to state interventions, the rupee looks certain to fall further in line with the REER range. Source: Pro Pakistani