For the past several weeks the government had been told that the rupee was overvalued. To set things right and improve the country’s external account, currency depreciation was deemed unavoidable. So the government decided to take the plunge rather than wait another few months by which time the next election would be due. This will give it some room to wiggle out of unpopular measures such as turning to the IMF again or loosening the currency peg.
For the sake of our economic managers, let us hope Pakistan’s exports swell long enough to sustain the foreign reserves and ultimately stave off a bailout of any sort.
Now that another depreciation has occurred, there are market expectations of an increase in the key discount rate by at least 25 basis points to 6.25%. The latest depreciation is set also to increase the country’s external debt burden. And Pakistan will need to fork out more rupees to service that debt.
Published in The Express Tribune, March 22nd, 2018.
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