Rupee appreciates to four-month high against US dollar

KARACHI:       The Pakistani currency rose to a four-month high against the U.S. dollar by gaining another 8 paisa in the interbank market on Monday. The rupee recovered to Rs155.98 during the early trade hours and the open market is expected to follow the similar trend.
According to economists, international currency rates and devaluation may have affected currency rates in Pakistan.
The World Bank forecasted Pakistan’s economic growth to slow down for the next two years as it faces yet another macroeconomic crisis due to massive twin deficits and low foreign reserves.
A report entitled “South Asia Focus: Making (De)centralisation Work” stated: “GDP growth (at factor cost) decelerated to 3.3 percent in FY19 – 2.2 percentage points lower than FY18 – as gradual policy adjustments to tackle macroeconomic imbalances started to take effect. These adjustments included a tightened monetary stance, cuts in public sector development expenditures, and enhanced focus on higher tax collections. As a result, large scale manufacturing, which accounts for half of overall industrial output, contracted by 3.6 percent in FY19? The services sector, which contributes over 60 percent to total output, decelerated to 4.7 percent in FY19 compared to 6.2 percent last year.”
Importantly, it predicted that inflation is expected to increase in fiscal year 2020 to 13pc but it will start declining afterwards. The increase in prices will be driven by the second-round impact of exchange rate pass-through to domestic prices.
Despite significant devaluation, the WB still sees the Pakistan rupee overvalued by the end of September by approximately 4.8%.
In the last two months, the local currency was observed to significantly recover against the greenback in both interbank and open markets.

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