Rupee's Remarkable Renaissance

Silaaj · March 13, 2014, 5:17am

Re: Rupee’s Remarkable Renaissance

I once thought that nothing less than a huge oil discovery would bring the dollar back below the 100 mark, but Ishaq Dar seems to have done wonders with the rupee by strengthening it against the greenback.

The US currency lost some of its sheen against almost all Asian currencies this week, Pakistani rupee also benefited from the overall weakness of the greenback. While the development is being cheered across the country, and rightly so, some questions are also there about the sudden rise of the rupee.

The mysterious arrival of $1.5 billion into Pakistan’s kitty remains to be explained. Some quarters are terming the money a reward by two Arab states for convincing Islamabad to do something it wasn’t willing to do.

Has Pakistan agreed to pay a political price to jack up its currency? Let us launch our conspiracy theories

Are we content with rejoicing on looking at pretty numbers on the screen? ($1 = Rs.97.50 looks better than $1 = Rs. 106) Or is there some tangible effect of this dollar decline? Dollar has slid about 10%, and crude oil slid about 4% over the past week. Does this mean we will be looking at something like a Rs. 10 decline in the price of petrol at the pump? How about prices of other imported items?

You answered half the question in your post. $1.5 billion was pumped in. That was about 60% of Pakistan’s remaining reserves. If your reserves suddenly go up by 60%, it doesnt take a rocket scientist to figure out that the exchange rate will improve as well. But the main question is by the people on the street. Not by the people trading in the stock market, or forex market. People on the street wonder if this will reverse the price increases they experienced during the past 8 months? Answer is, not by this much. Pakistan still has not experienced any increase in revenue generation from the manufacturing sector. They are still relying on making money by taxing the lower class.

Rupee decline 8 months ago was because of massive money printing by the SBP…and this rise is because of massive rupee buying, thanks to 1.5 billion influx, combined with increased remunerations from overseas. Pakistan does not have a sizable trade relationship with the US to be impacted by an internationally declining US currency.