By the end of 2024, rupee could plunge to 350: report

Pakistan’s rupee can drop to as low as 350 against the dollar by the end of next year, according to BMI, a Fitch Solutions Company, in the aftermath of the Pakistani government’s announcement that it will be Asia’s worst-performing country by the end of 2023.

Despite the government’s efforts to crackdown on smugglers and speculators, analysts say that the local currency will continue to lose 20% of its value versus the dollar over the next few months, Bloomberg reports, despite the government’s efforts to crack down.

It is expected that the Indian rupee will reach 350 against the dollar by the end of 2024, a figure projected by BMI, a Fitch Solutions Company, while brokerage firm Topline Securities Ltd expects it to reach 324. In the interbank market on Tuesday, the local currency closed at 285.52 against the dollar, with the dollar at 285.52.

According to global economist at BMI in London John Ashbourne, the rupee appears to be on the verge of adjusting downwards due to the country’s record inflation levels, trade deficit, and other factors impacting the currency.

Despite the cash-strapped nation being in an economic slump, the rupee is being weighed down by high debt payments, a gap in external funding, and a drop in remittances – one of the country’s primary sources of foreign exchange. As the Pakistani rupee remains weak and foreign investments have dropped drastically, there seems to be no respite for the currency as it was on the verge of default last year.

In a short-term agreement with the International Monetary Fund, Pakistan was able to avoid default by receiving a $700 million bailout this month. The avenue for inflows to Pakistan, however, keeps shrinking as the country’s economy continues to deteriorate — leaving it more dependent on multilateral and bilateral loans.

The State Bank of Pakistan placed restrictions on the dollar last year in order to safeguard dwindling reserves, which fell to the lowest levels in multiple years as a result of a dollar shortage, leading to a possible strengthening of parallel currency markets – hundi and hawala.

After the rupee had traded at a record-low level of 300 in September, the caretaker government launched a massive illegal attempt to sell and buy the greenback at a premium at a time when it had been trading at a record-low level, but experts say that this recovery will be short-lived.

As Ashbourne explained, it will be very difficult in the long run to convince people, if parallel markets offer more value than the official rate, to use the official rate. In some situations, the authorities are capable of pushing against the tide for a certain period of time, but they are unable to sustain that effort for a long time.”

Despite soaring interest rates and only short-term arrangements with lenders to support the external balance, Goldman Sachs Group Inc warned the market will continue to require a premium for the rupee in the face of rising interest rates.

In response to Topline Securities’ recommendation, the new government – which will be formed after the upcoming elections in February next year – should enter into a new deal with the IMF to provide relief to the currency, so that the economy can grow in the process.

The IMF analysts wrote in a note released this month that Pakistan’s external account vulnerabilities could only be effectively addressed with the establishment of a new and larger program, which will expand the IMF’s portfolio.

That news provided by timenews.