Pakistani rupee has been under severe selling pressure again all major currencies of the world, especially the US dollar. Current economic crisis has led the Pakistani currency to this miserable condition. When everything else failed to control currency devaluation, the central bank of Pakistan came into play on May 22, 2008 and took several measures to handle the situation. The things got a bit better afterwards, but again in July rupee sank to all time low against the US dollar, i.e. 72.90.

If we take a look at the graph showing PKR/USD parity, we discover that rupee/dollar rate had been quite steady below 63 during the first quarter of the current year. It showed maximum resistance at the level of 62.5. Later during the third week of April, rupee started getting depreciated drastically and impaired the country’s foreign reserves to a great extent. In May and July, it fell to record levels of 69.77 and 72.90 respectively.

The US dollar started appreciating against the rupee in April, when it actually broke the resistance barrier of 63. It was a steady downward journey for the rupee, as depicted in the graph below.

But the things only got worse for the Pakistani rupee in May. The graph showing PKR/USD Parity in May 2008 tells the whole story that how the Pakistani currency plunged to a record low of 69.77 on May 20, 2008, consequently paving way for the central bank’s intervention, which somehow restored the rupee’s value to a relatively respectable level.

Soon after rupee hit all time low against dollar i.e. 69.77 on May 20, 2008, the State Bank of Pakistan’s measures prevented it from going beyond the level of 70, and pulled it back under 68 for a short period. However SBP could not stop the rupee depreciation against the dollar in the wake of rising imports and crude oil prices in the international markets. The things got complex after the first week of July, when once again rupee plunged against the dollar to all time low of 72.9 on July 8, 2008. The following graph gets you a better picture of the whole situation.

Main reasons behind it all are bulging imports, which have now reached around $3 billion per month, and poor economic conditions in the country.  Average monthly oil imports count for around $800-$900 million. On the other hand, home remittances are just around $500 million per month only. Central bank again took regulatory measures to halt the freefall of rupee.  Most importantly, the curbs on forward currency trading helped rupee recover to the level of 69.70.

According to the government finance officials, monetary policy could be tightened further in order to fight inflation in the country. This decision could really impact the rupee as well in the near future. Rupee had fallen approximately 7 per cent since July 1 of the new fiscal year. The depreciation of rupee against the US dollar sums up to be around 18% since January 2008. The whole scenario may seem to be quite depressing but I don’t think that the speculator can exploit it any further. High interest rates, curbs on forward buying, and new lower crude oil and gold prices will all have a positive impact on the Pakistani currency shortly.