Pakistani rupee trading near 'fair value'

Waheed Abbas/Dubai
Filed on July 17, 2020 | Last updated on July 17, 2020 at 08.02 pm
The Pakistani rupee has lost 1.2 per cent in the past month, 4.6 per cent in the past year and 64 per cent in the last five years.

(Reuters file)

Currency unlikely to depreciate sharply in H2, may average 46.6 versus dirham in 2021

Pakistan's rupee is currently trading near its fair value and is unlikely to see a sharp depreciation in the second half of 2020, but the currency is expected to weaken slightly next year to average 171.15 versus the US dollar, or 46.6 against the UAE dirham, say analysts.

"Pakistan's rupee has fallen 22 per cent in real terms since 2017, putting our estimate for the underlying current account in slight surplus. That, in turn, means the rupee is near fair value," said Garbis Iradian, chief economist for Mena region at the Institute of International Finance.

The rupee has declined substantially in the recent year, including in 2020. It has lost 1.2 per cent in the past month and 4.6 per cent in the past year. In the last five years, it has fallen from 27.7 on July 20, 2015, to 45.5 on on Thursday versus the dirham, losing over 64 per cent. It hit an all-time low of 45.82 versus the dirham, or 168.15 against the greenback, on March 29

Pakistan's underlying current account is in small surplus, helped along by positive depreciation effects. The State Bank of Pakistan reported that the South Asian country achieved a current account surplus of $13 million in May 2020 compared to a deficit of $530 million in April and $1 billion in May 2019. It has lost 7.8 year-to-date versus the dirham. The country'sannual trade loss has also fallen to $8.6 billion as imports declined to their lowest level in nine years.

"The Pakistani rupee, meanwhile, is near fair value, given past depreciation and an underlying current account near balance," added Iradian.

Fitch Solutions has predicted that the rupee will unlikely see a sharp depreciation for the remainder of this year and is likely to average 163 against the greenback, or 44.4 versus the dirham, as the pressure will ease on repayments of loans from the G20 and the Abu Dhabi Fund for Development.

"We do not expect a sharper depreciation in the rupee given our expectation for support from international partners, such as the Global-20 countries, which will boost Pakistan's foreign exchange reserve base and ease external financing pressures," it said.

Fitch predicted that the rupee will average 171.15 versus the dollar, or 46.6 against the dirham, in 2021.

"Over the long-term, we forecast the Pakistani rupee to average weaker at Rs171.15 versus the dollar in 2021 due to higher structural inflation vis--vis the US. We forecast the unit to continue to trade weaker, forecasting the rupee to average 163 against the dollar in 2020," Fitch said in its latest currency roundup report.


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