The Pakistani rupee has fallen to a four-and-a-half-month low, hitting Rs278.66 against the US dollar in the inter-bank market. This decline marks the second consecutive working day of depreciation, driven by an expected increase in demand for foreign currency following Tuesday’s interest rate cut.
The State Bank of Pakistan (SBP) cut its key policy rate by 100 basis points to a 16-month low of 19.5% on Monday, encouraging businesses to ramp up production through relatively cheaper bank financing. This move created demand for additional imports to fuel industries and expand economic growth, leading to a recent spike in import demand to around $5 billion a month.
The reduction in foreign exchange reserves, now at 9.1billion,hasalsocontributedtothedownturninthelocalcurrency.However,theavailableFXreservesremainrelativelyhighercomparedtoforeigndebtrepaymentsof
The bank projects growth surging to a range of 2.5-3.5% in the current fiscal year 2024-25 amid the rate cut, compared to 2.4% achieved in FY24. Global and local research houses have projected the bank would cumulatively decrease the policy rate to around 15-16% in FY25 amid deceleration in inflation in the country.
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