Don�t Fall in Love with Parity: Understanding Exchange Rate Depreciation

Abdul Jalil
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Abdul Jalil: Pakistan Institute of Development Economics

No 2021:42, PIDE Knowledge Brief from Pakistan Institute of Development Economics

Abstract: The Pakistani rupee has depreciated, against the US dollar, around 10 per cent, since May 2021 (see Figure 1). This is a natural response of the exchange rate parity to swelling trade deficit, mounting inflation, and negative real interest rates. Considering the macroeconomic fundamentals of the Pakistani economy, it is expected that the rupee will remain under pressure and will continue on the fall. This situation raises several questions. What should be the response of the State Bank of Pakistan (SBP)? Should SBP intervene in the forex market or not save the parity? If yes, then how much? If not, then why? What should be the course of action of the government and the SBP in the long run?

Keywords: Understanding; Exchange Rate; Depreciation (search for similar items in EconPapers)
Pages: 4 pages
Date: 2021
New Economics Papers: this item is included in nep-mac and nep-mon
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Journal Article: Don’t Fall in Love with Parity: Understanding Exchange Rate Depreciation (2021)
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