Flash Note: Pakistan Economy - PKR/USD Depreciation Marks a Paradigm Shift in Policy Making
- Pak Rupee (PKR) has depreciated by 3.9% during the day to 121 against the greenback, from last week’s close of 116.5. Historically the local currency has depreciated in spurts, with today’s move being the third one during FY18TD (previous ones being in Dec-17 and Mar-18), taking the cumulative depreciation to 15% over the ongoing fiscal year (compared to flattish performance during FY15-17).
- We see recent rounds of PKR depreciation as a paradigm shift in policy making since the end of Finance Minister Ishaq Dar’s era who remained rigid on maintaining fixed exchange rates. Lately, policy makers on both fiscal and monetary sides did not oppose currency depreciation as they saw it as a tool for addressing external account vulnerabilities.
- The currency has continued to depreciate owing to growing pressures from deteriorating external account situation, and central bank allowing flexibility in exchange rates as a go-to tool to address this economic issue since structural policies would take long to bear fruits.
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