The New York-based research agency, in its quick view, noted that the rupee’s devaluation was triggered by the decision among local foreign exchange companies to remove the self imposed cap on the exchange rate on January 25. The News reported.
The State Bank of Pakistan (SBP) initially intervened, but the significant depreciation in the rupee “is a clear sign the authorities have effectively loosened their grip on the currency.”
Fitch Solutions mentioned that their current forecast for the rupee to reach Rs 248 per dollar by year-end “is therefore now looking out of date”, The News reported.
Following massive depreciation of 14.36 per cent (or Rs38.74) in the last three days (Thursday-Monday), compared to Wednesday’s close at Rs 230.89, the rupee’s steep fall hit brakes as it was changing hands with the greenback at Rs 268.20 in the interbank market (as of 11.04 a.m.).
“We believe that the rupee’s weakness still has further to run particularly with Pakistan’s balance of payments positions likely to remain weak for several more months,” it noted.
The agency said that there remains a “considerate amount of uncertainty at this juncture” therefore it is difficult to gauge the extent to which the latest devaluation has caused investor sentiment to soar further, The News reported.”We will therefore firm up our rupee forecasts over the coming weeks, once the dust settles,” the quick view mentioned.
In its analysis, Fitch warned that a continued weakening in the rupee will have broader economic implications too in the near term, “it could exacerbate imported inflationary pressure and may eventually result in steeper policy rate hikes from the SBP”.
The report added that Fitch expects Pakistan”s economy to contract by 0.3 per cent in the fiscal year 2022-23.
Fitch, however, mentioned that the rupee’s devaluation will help Islamabad secure further disbursements from the IMF, which would be a positive for the longer-term outlook as it would help ease Pakistan’s balance of payments strains.
The world’s fifth-biggest population has less than $ 3.7 billion as reserves in the State Bank – enough to cover just three weeks of imports, The News reported.
