Today's US$ rate is 97.9 rupees, whereas it was 113 a few months ago...
I have found the following reasons:
1. the forex reserves of the country have improved from USD 7.59 billion as on February 7, 2014 to USD 9.37 billion as on March 7, 2014, Dar said.
2. Sentiments have shifted due to positive IMF staff reviews, expectations of significant aid and investment inflows in 2014, and interventions by the State Bank of Pakistan (SBP) through the forward/swap market,” Sayem Ali said, an economist.
3. The expected receipt of $550 million from the International Monetary Fund (IMF), along with the launch of Eurobonds amounting to $500 million likely next month, has also led to positivity in the foreign exchange market.
4. The trade with Afghanistan will be in dollars from 17th of this month which means Pakistan will receive up to $2 billion per year through this source, Atif Ahmed said, an inter-bank dealer
5. According to the State Bank of Pakistan, the country received foreign direct investment (FDI) of USD 523 million in the first seven months of 2013-14 and USD 106.9 million in January alone.
6. Inter-bank dealers said the daily market turnover (selling to banks) went beyond $400 million against average earlier inflows of about $300m
From what you have listed it appears that the sole reason for the strengthening of Pak Rupees is due to inflows of foreign currencies/expected inflows and improved forex reserves (which is again the result of increasing forex inflows). You can also have a look at the Balance of Payments position (both trade, current account and the capital account). If sentiments turn in favour of Pak, then look at the Stock index of the country also. This may shed light on the strengthening currency.
Hnm... Interesting point raised by Dr. S. Durai Raja
The Political situation is also stable in Pakistan as compared to recent 7 years. Moreover, the major stock market of the country (Karachi Stock Exchange) moved up to 27000 index points (at all times record level).
In addition, Balance of payment will obviously improve since it will reduce the cost of imports along with the payments of foreign Government loans.
I think
Positives: depreciation of the dollar would result in a massive reduction in cost of imports, reduction in Govt debt, Marginal fall in inflation rate,
Negatives: Exports would fall with the massive appreciation of the rupee, fall in Govt taxes (in rupees)
The question was about the causes for the appreciating Rupee but now you are talking about the effects of appreciation. govt. would not like to lose the export market share and so would generally not allow heavy appreciating local currency. As a consequence, more of intervention to absorb the foreign currency will increase money supply locally which would (after a lag) fuel the inflation. As such your observation that marginal fall in inflation may not materialise.
https://www.researchgate.net/publication/301578726_Stock_Market_and_Macroeconomic_Behavior_Evidence_from_Karachi_Stock_Exchange_KSE
Article Stock Market and Macroeconomic Behavior: Evidence from Karac...
- Badges
- Science topic
- Similar topics
- Computer Science
- Research Topics