USD/PKR Trading Below 154.200 on Friday Morning

USD/PKR continues to gradually decline on Friday, after showing two short-term spikes. Currently, one US dollar buys 154.185 Pakistani rupees, as of 9:00 AM UTC, down from 154.275 yesterday. The price has peaked to 154.450 in the morning, but couldn’t maintain there.

Note that the Pakistani government controls the exchange rate of its currency by pegging it to the US dollar, which is why the pair has been trading in the 154.000 territory for months.

The State Bank of Pakistan (SBP) said yesterday Pakistan’s foreign exchange reserves increased to $18.747 billion in the week ended February 14, from $18.735 billion the previous week. The forex reserves held by the central bank itself increased $74 million to $12.504 billion.

Central Bank of Pakistan Likely to Cut Interest Rate

SBP Governor Reza Baqir said on Thursday that the central bank might cut the interest rate later this year as consumer inflation is anticipated to ease. He stated:

“Drop in inflation would have a trickle-down impact as food inflation is currently on the higher side. Reduction in inflation would help in reducing interest rate.”

Last month, consumer inflation was at 14.6%, while the interest rate is currently at 13.25, which is the highest level in a decade. Baqir made it clear that the bank’s policymakers decide the rate without any interference from the Pakistani government.

Economy Eyeing Growth

Speaking at the CEO Summit Asia 2020, organized by the CEO Club Pakistan and Management House, Baqir stressed that the most challenging part of the economic stabilization was over and that Pakistan’s business sector should expect better days. He cited early signs of a turnaround after January data showed an increase in large-scale manufacturing, sales of cement and imports of machinery.

“We can say with confidence that we have put the worst behind us. […] Currently we are moving from stability to growth. Things will take time to further improve,” the governor said.

However, Baqir admitted that exports contribute only less than 10% of the gross domestic product (GDP). Exports rose 4.5% in the first six months of the financial year 2020.

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