Is the rupee poised to depreciate?

BUSINESSMEN and investors want to know how long the rupee may remain stable. Many fear that the local currency might lose its worth against the mighty US dollar in the coming weeks and months. The State Bank of Pakistan (SBP) doesn’t have enough foreign exchange reserves to cover even two months of import bills for goods. This means that the rupee will start losing ground whenever market-driven demand for the dollar spikes. And the dollar demand may spike soon as the SBP further liberalises import payments and outward remittances pick up further pace. So far, the SBP has successfully saved the exchange rates from the speculative attack on the rupee, thanks to the strong backing of the country’s powerful establishment. It may continue to avert speculative attacks on the rupee in future as well. However, the central bank or the incoming government cannot do much when the real demand for the dollar increases sharply and the supply cannot match it.