The State Bank of Pakistan (SBP) stated on Tuesday that the recent loss in the value of the rupee relative to the US dollar was “in large part a global phenomena,” but that the decline “in the currency value since December 2021 has only been 3 percent.”
The SBP stated on its Twitter account that this is a stronger indicator of a currency’s strength and competitiveness than the US$ rate.
SBP said in a series of tweets that the recent movement in the value of the rupee was a characteristic of a system where currency rates are set by the market.
1/4 The recent movement in the Rupee is a feature of a market-determined exchange rate system. Under this system, the current account position, relevant news items, and domestic uncertainty together determine daily currency fluctuations. pic.twitter.com/VXWI7lVSWY
— SBP (@StateBank_Pak) July 19, 2022
“Under this system, the current account position, relevant news items, and domestic uncertainty together determine daily currency fluctuations,” it highlighted.
It further explained that globally, the US dollar has surged by 12% in the last 6 months to a 20-year high, as the “Fed has aggressively raised interest rates in response to rising inflation.”
2/4 Recent Rupee depreciation against the US$ is also in large part a global phenomenon. Globally, the US$ has surged by 12% in the last 6 months to a 20-year high, as the Fed has aggressively raised interest rates in response to rising inflation. pic.twitter.com/Ng6jxwC0LJ
— SBP (@StateBank_Pak) July 19, 2022
“Like most advanced and emerging market currencies across the world, the Rupee has depreciated against the US$ since Dec 21,” it said, adding: “It has depreciated by 18% over this period.”
However, the statement noted that when evaluated in real effective terms against a basket of currencies in which Pakistan trades and adjusts for inflation, the depreciation in the rupee since Dec 21 has only been 3%.
“This is a better measure of the strength & competitiveness of a currency than the US$ rate,” it said.
The announcement comes after the Pakistani rupee suffered a severe beating at the hands of the US dollar on Tuesday in the interbank market, falling as low as 224 during intraday trading amid renewed political unrest that destroyed market confidence and provided additional material for “speculators.”
According to the SBP, the currency fell by Rs6.79 or 3.06 percent to close at Rs221.99.
According to a post-market report from brokerage firm Arif Habib Limited, this was the largest day-on-day depreciation since June 26, 2019. (AHL).
Tuesday’s reports suggested the precipitous dip was caused by high import costs and further political uncertainties.
The pressure was further increased by Fitch Ratings’ downgrading of Pakistan’s outlook.
