Potential 5-10% Depreciation Predicted for Rupee in 2024

Potential 5-10% Depreciation Predicted for Rupee in 2024

In the upcoming year, the rupee is anticipated to sustain its downward trend, facing various economic challenges such as surging inflation, substantial debt obligations, an expanding external financing gap, and diminishing foreign exchange reserves, according to a report from Tresmark, a financial terminal.

The report suggests that the rupee, having already experienced a 20 percent decline against the dollar this year, could undergo an additional depreciation of 5-10 percent in the next year. The situation is attributed to Pakistan’s economic struggles marked by near-zero growth, low productivity, increased repayments, and limited avenues for foreign exchange generation.

As of December 15, 2023, the local currency concluded at 283.26 per dollar in the interbank market, in contrast to its standing at 226.43 on December 30, 2022.

The report highlighted the challenging circumstances ahead for the rupee, emphasizing a slowdown in imports, reduced exports and remittances, and the compounding effect of persistent inflation on the economy.

Tresmark issued a cautionary note, expressing concern that the rupee’s weakness might contribute to another round of inflation, posing a potentially overwhelming burden for all stakeholders.

The average inflation rate for the initial five months of the fiscal year stood at 28.62 percent, surpassing the central bank’s target of 22 percent for the current fiscal year.

Furthermore, Tresmark cast doubt on the feasibility of achieving the State Bank of Pakistan’s (SBP) 22 percent target for the entire year. The report projected a mean consensus of 22.50 percent for the remaining months, a significant 5 percent above the SBP’s expectations.

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