What were the main causes of devaluation of Pakistani Rupee?

Recently, Pakistani rupee experienced a sharp decline in its value in comparison to the US dollar. It is not for the first time. The economy has experienced bad consequences created by these fluctuations in the past as well. In 2018, during the month of May, Pakistan interbank and Kerb forex market showed a surprising decline in the value of Pakistani rupee. Despite the intervention of banks and regulatory steps as well, the value of currency continuously experienced the decline. This occurrence of fall of Pakistani rupee has several factors including the factors discussed below:

  • The decline in export commodity prices and the raising import commodity prices which are known as price shocksis one crucial cause of devaluation of Pakistani rupee.
  • Increasing imports results in the rise of current account deficits. These deficits are financed through foreign reserves which cause the decline in the number of foreign reserves held by the state bank of Pakistan.
  • The huge amounts of foreign payments as debtis one of the reasons why Pakistani rupee is declining.
  • Due to the rise in the inflation rate, the input cost of exportable goods rises which makes the prices incompetent. For the purpose of price competitiveness, sometimes devaluation is done intentionally.

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