'Domestic uncertainty', 'news items' causing PKR devaluation: SBP

The State Bank of Pakistan (SBP) has issued a report regarding the recent fluctuation in the currency rates, citing an international spike in Dollar rates and ‘domestic uncertainty as reasons for the huge devaluation of PKR, ARY News reported. 

1/4 The recent movement in the Rupee is a feature of a market-determined exchange rate system. Under this system, the current account position, relevant news items, and domestic uncertainty together determine daily currency fluctuations. pic.twitter.com/VXWI7lVSWY

— SBP (@StateBank_Pak) July 19, 2022

The SBP shared a detailed report justifying the recent drop of the local currency against the USD on Twitter.

The report read that the recent movement in Rupee rates is ‘a feature of a market-determined exchange rate system.’ The current account position, relevant news items, and domestic uncertainty together are causing the daily currency fluctuations.

It added, “Recent Rupee depreciation against the US$ is also in large part a global phenomenon. Globally, the US$ has surged by 12% in the last 6 months to a 20-year high, as the Fed has aggressively raised interest rates in response to rising inflation.”

The report added that like most advanced and emerging market currencies across the world, the Rupee has depreciated against the US since Dec 21. It has depreciated by 18% over this period.

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The SBP clarified that in real effective terms—i.e. against a basket of currencies in which Pakistan trades & adjusting for inflation—depreciation in the Rupee since Dec 21 has only been 3%. This is a better measure of the strength & competitiveness of a currency than the US rate.