Pakistani Rupee Witnesses Decline to 3-Month Low on Caretaker Government’s Inception

As the new caretaker government assumed control on its inaugural day, the Pakistani rupee (PKR) experienced a notable drop, reaching a three-month low of 292 PKR against the US dollar. This decline highlights the challenges faced by the nation’s currency, despite a temporary boost following the International Monetary Fund (IMF) agreement and capital inflows from friendly nations.

The currency had previously displayed stability, hovering around Rs288 against the US dollar over the past three months. However, on Tuesday, it depreciated by 3 PKR against the greenback in the interbank market, aligning with market expectations of renewed devaluation.

The anticipation of a potential depreciation had been circulating amid the implementation of the IMF’s recent $3 billion loan program, which was secured in late June. The former PDM coalition government chose not to enact this depreciation during its final two months in power, leaving the task to the subsequent caretaker administration.

Market analysts also attribute the rupee’s devaluation to the government’s decision to remove restrictions on imports that were previously imposed to manage dwindling foreign exchange reserves. This shift in import policy is believed to have contributed to the weakening of the rupee against the dollar.

Despite a brief period of PKR appreciation following the IMF deal and capital inflows, the currency has once again regressed to levels observed prior to the agreement, fluctuating between 285 PKR and 290 PKR per dollar.

Interestingly, this devaluation occurred even as the State Bank of Pakistan’s foreign exchange reserves experienced a doubling within a month. This phenomenon underscores the fact that external factors alone are insufficient to bolster the rupee’s strength. The removal of import restrictions has spurred demand for the dollar, creating additional pressure on the Pakistani rupee.

As the new caretaker government grapples with economic challenges and seeks to navigate the nation through these turbulent times, the fate of the PKR remains closely tied to both internal and external economic decisions and developments.

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