Brace Yourself for Inflated Prices with Dollar Hitting all Time High

Jun 28, 2019

Brace Yourself for Inflated Prices with Dollar Hitting all Time High in Pakistan

Since the beginning of the year 2019, Pakistani rupee has been heading down the slope with the dollar escalating along the upward trajectory, gaining an astonishing value of 157.1 against Pakistani rupee. In the last few days, the graph of the rupees’ power against US dollar decelerated, losing 5% of its value against US dollar, thus making it the worst performing country in 13 currencies in Asia. Since the beginning of the dark clouds of inflation on the economy, the rupee has lost 21% to its value to the dollar. This deprecation started a long time ago as, by the mid ‘70s, it lost 50% of its value to dollar and almost 90% in ‘90s.

However, the nation is set to face the wrath. According to the President Forex Association of Pakistan Malik Boston, the rupee is expected to undergo further devaluation by 15-20 % by the end of this year.

“Until the foreign exchange reserves situation improves, there is no chance of the dollar coming down,” he said.

Experts and analysts believe that the sudden devaluation of the currency against the dollar is due to the consensual, undisclosed commitment of the government with International Monetary Fund (IMF) authorities to release $6 billion funds. However, the State Bank of Pakistan deemed this downward plunging of the PKR to market dynamics. The uphill surge of the greenback puts a burden on the economy of the country not only individually but collectively on the whole nation with external debts shooting to set a record of $106 billion. If the dollar gains 1 rupee against Pakistani currency, it increases the total debt by an astonishing amount Rs100 billion.

A weak rupee, against the US dollar, means inflation which not affects every aspect of quality of life of Pakistani citizens. Inflation spiked to 9.9% in May 2019. Increased rates of petroleum products, household items, electricity, food, transportation, crashed stock exchange, and fragile cottage industries struggling to survive puts an extra burden on the weak shoulders of the general public of Pakistan where the poverty ratio is already striking high. The domestic price of imported goods will nudge up further, crashing the whole market. The government proposed that devaluation of rupee will boost exports business, getting escalated value of their items than before. However, there is an increment of only 0.12% export since 2018, thus proving the government claims false and illogical. Inflation upsurges affect the poor the deepest both directly, by increasing the prices of daily household items and indirectly, by not affording the medical and educational facilities.

Pakistan’s economy faced a major setback in industrial, agricultural and services setup. NEPRA increased the electricity tariff by Rs. 1.4902 per unit to collect 189.6 billion rupees from power consumers over the next fifteen months. The prices of 24 karat gold ballooned by Rs2700 on Friday, 15th June 2019, soaring the 1 tola price to Rs 75900 as compared to the previous trading price of Rs 73200.

The State Bank of Pakistan lifted the interest rates of 12.5% saying,” the inflation pressure is set to continue for some time”. Nevertheless, it also stated, “It will continue to closely monitor the situation and stands ready to take measures, as needed, to address any unwarranted volatility in the foreign exchange market.” The positive feedback of the upturned value of the dollar and rising inflation rates has put the economy of the country in a vicious cycle.

Zafar Parcha, Secretary General of Exchange Companies Association of Pakistan, claimed that the depreciation led to haunting the investors and created a panic situation by heaping more pressure on the currency. $10 billion have already been added to Pakistan’s debt since September 2018. According to econometric models, if the same trend continues in the open market then the debt is expected to increase to $123000 by the year 2020.

A new wave of inflation is set to engulf the country, putting more pressure on the people of Pakistan under the rising weight of prices in NAYA Pakistan and dumping its economy into a swamp. The State Bank of Pakistan must monitor the increasing trajectory to greenbacks against the Pakistan rupee and correct the imbalances ignore to stabilize the economy of the country. The government cannot do much to avoid depreciation when needed, but they can make them less dramatic by allowing a more flexible exchange rate regime.

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