Rupee Depreciation 📉I Macro Pakistani Bite # 62
Rupee Depreciation 📉
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Good Evening!
With the Taliban in charge of Afghanistan, New Zealand cricket abruptly cancelling its tour of Pakistan, and the rupee depreciating to record lows—sometimes it feels as if we’re still stuck in the early 2000s. Personally, I’m just waiting for the return of denim suits and the Beckham mohawk.
Back to the economy though, the recent slide of the rupee has been quite dramatic to witness. It was only in May 2021 that the PKR/USD exchange rate was touching a 22-month high of PKR 152.27. Since then, the rupee has lost PKR 17.36 in four months to become the worst-performing currency in all of Asia.
The slide in value has led to some predictable reactions; businessmen worrying about their investments being jeopardised, PML-N boasting about the exchange rate during their tenure, and State Bank representatives coming on TV to warn “currency speculators”.
Cutting through all the noise however, there are really two main things you need to know. First, that as an import-reliant country, depreciation has a severe impact on inflation, which disproportionately burdens the poor and working-class. Second, as long as we fail to tackle our current account deficit, any other measure taken to stem the rupee’s value will only be temporary.
Quite simply, our import bill is way too high, and our exports are way too low. I guess things haven’t changed much from the 2000s after all.
WEEKLY DATA WATCH
KSE-100 fell this week, partly due to persistent depreciation of PKR against USD. PKR depreciated further this week, amid a widening current account deficit. Local gold prices rose slightly again this week.
The annual change in Sensitive Price Index rose to 14.33% vs. 13.64% last week. The poorest of the country (Q1) continue to bear the brunt of increased prices, with a change of 17.10% vs. 13.88% for Q5. On a weekly basis, prices rose for all quintiles by 1.31%.
Increase in prices of Electricity (+7.23%), Petrol (+4.19%) and Chicken (+3.40%) contributed to weekly inflation. A fall in the price of Tomatoes (-18.59%) and Onions (-7.22%) helped moderate inflation this week.
What Else We’re Reading (Local)
What is the significance of PSX being downgraded from an emerging market to a frontier market? (Profit)
In a rare moment, both the government and opposition actually agreed on something: the pace of work on CPEC projects has been far too slow. (Dawn)
What Else We’re Reading (International)
The World Bank’s flagship Ease of Doing Business report has been cancelled after an investigation concluded that staffers had been pressured to alter data affecting the rankings of various countries. (WSJ)
India is pitching Iran’s Chabahar port to landlocked Central Asian countries, in direct competition with the China-backed Gwadar port that has similar ambitions. (Bloomberg)
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