After the currency touched almost eight months high at Rs158.91 against the US dollar in the interbank market on Monday, experts said that the Pakistani rupee became the third best-performing currency in Asia.
As Pakistan has become a net importer of wheat, sugar and cotton this year to boost supplies, development will help tackle high inflation. Previously, the deficit in the output of agricultural commodities caused their prices to rise in the region.
In a commentary Alpha Beta Core CEO Khurram Shehzad said, “Pakistani rupee entered the list of best-performing currencies in Asia, appreciating by 3.1% against the US dollar since October 1, 2020, thus securing the position of the third best-performing currency in Asia after Indonesian rupiah and South Korean won.”
He added that Indonesian rupiah had regained 4.5% while South Korean won recovered 3.6% from October 1. 2020. “Improving rupee-dollar parity decreases the burden on the country’s external debt and imported inflation,” the analyst said.
Whereas exports should not be harmed in the short term because, according to estimates, the country’s export industries are already operating at 100-120% of their potential, although there is still room for more improvement in the Real Effective Exchange Rate (REER) index (measuring competitiveness through relative currency parity).
Saad Hashmi, BMA Capital Executive Director, said the rupee could continue the upward trend following the victory of Joe Biden in the US presidential election. “Biden aims to strengthen the US relationship with Iran; growth in the international market could drive down crude oil prices, as Iran is a major producer of oil,” he said.
However, analysts are wary of predicting the future of the rupee. As the world experiences the second wave of Covid-19, the potential rupee-dollar parity will be influenced by Pfizer’s announcement of a promising Covid-19 vaccine and foreign oil prices.
The Pfizer vaccine may not be commercially available before December, while any rise in international oil prices is likely to be a short-term phenomenon, with Iran likely to return to the oil export market.
Pakistan is also likely to pay back $2 billion in debt to Saudi Arabia, $1 billion next week and $1 billion in January 2021. The development could be neutral for the rupee considering that Pakistan can arrange $2 billion from China and it has been learned that it is all set to launch Eurobonds and Sukuk worth $2 billion in February 2021.