Why Did the Pakistani Rupee Strengthen Against the Dollar?

 


Why Did the Pakistani Rupee Strengthen Against the Dollar?

Two days ago, the Pakistani rupee strengthened against the US dollar, bringing it to its highest level in the last seven months. The Pakistani rupee (PKR) has been weak against the US dollar since May 2015, so this strengthening caught many people by surprise. The current account deficit has been a key concern for the Pakistani economy for some time now. In order to finance this deficit, Pakistan has had to rely heavily on external financing, which has put pressure on the country's foreign exchange reserves. The situation was made worse by the fact that Pakistan's exports have been declining in recent years. All of this led to a situation where the Pakistani rupee was under pressure against the US dollar.

While there are many short-term factors that can contribute to changes in exchange rates, the long-term trends are usually more significant. In the case of Pakistan, some of the underlying reasons for the recent strengthening of the rupee against the dollar include; Improved economic fundamentals, such as lower inflation and a narrowing current account deficit; Greater foreign investment due to confidence in Pakistan's economy; and The central bank's interference  in the cash market. These factors suggest that the recent strengthening of the rupee is not just a short-term blip, but rather part of a longer-term trend. The Short-term factors that increased rupee value are; The Pakistan Central Bank increased interest rates, making the rupee more attractive to investors. Economic data from Pakistan showed improvement, leading to increased confidence in the country's economy. Oil prices fell, decreasing the amount of dollars needed to import oil into Pakistan. Remittances from Pakistanis working abroad increased as the global economy improved. The International Monetary Fund approved a loan for Pakistan, increasing confidence in the country's economy.

There are a number of factors that can contribute to the Pakistani rupee strengthening against the dollar. One is an increase in exports. This can happen when there is an increase in demand for Pakistani products or a decrease in the price of Pakistani exports. Another factor is a decrease in imports. This can happen when there is a decrease in the price of imported goods, or an increase in domestic production of substitutes for imported goods. Another potential factor is an increase in foreign investment, which can bring new capital into the country. Finally, central bank intervention can also affect the exchange rate. If the central bank buys dollars and sells rupees, it will increase demand for rupees and put upward pressure on the exchange rate. The Pakistani rupee has strengthened against the dollar since February 2019, when it reached an all-time low of 138.25 to the dollar. The reasons for this are twofold: first, Pakistan's current account deficit has shrunk; and second, foreign investors have been buying more Pakistani government bonds. However, any significant increase in oil prices would likely put downward pressure on the currency.

The Pakistani rupee has been under pressure since early 2018. However, in the last few weeks, the rupee has started to strengthen against the dollar. While there could be a number of reasons for this sudden shift, it's likely due to a variety of factors. For one, the Pakistani government has been working to improve its economy by implementing structural reforms. This has led to increased investor confidence in the country, which has helped the rupee strengthen against the dollar. Additionally, Pakistan's central bank has been working to increase foreign currency reserves, which also helped support the rupee. Finally, global oil prices have been on the decline recently, which is good news for Pakistan since it is a net importer of oil. All of these factors likely contributed to the Pakistani rupee's recent strength against the dollar.

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