Rupee depreciation far less than comparable economies: State Bank

KARACHI: Pakistan rupee escaped the shockwaves hit to the developing economies as a result of global market selloff amid the pandemic, the central bank said on Monday.

After the coronavirus crisis, capital flight from risky assets triggered currency depreciation in most of the emerging markets. Rupee experienced a 3.3 percent slide against the US dollar between January 20 and May 4.

“The depreciation of PKR at 3.3 percent is far less than to comparable developing economies,” the State Bank of Pakistan (SBP) said in its series of video presentations about the COVID-19 impact on Pakistan’s economy.

Surge in the dollar valuation owing to the uncertainty in the financial markets amid COVID-19 drove most of the emerging markets to record lows. South African Rand fell 21.6 percent, Turkish Lira 16.5 percent, while Indian Rupee was down 6.2 percent.

Bangladesh Taka and Egyptian Pound also performed well with 0.2 percent and 0.6 percent decline, respectively in the period under review. The SBP said the impact of COVID-19 on Pakistan, in terms of capital outflows, has relatively limited compared to other regional countries.

However, global capital flights to safety have caused substantial outflows from the emerging markets including Pakistan, it said. Capital outflows from the developing economies were $27 billion post global financial crisis in September 19, 2008 to November 21, 2008. However, these outflows stood at $59 billion during February 21 to March 20, 2020 through the coronavirus pandemic.

“Pakistan has also witnessed portfolio capital flight in line with the global pattern,” the central bank said. The SBP said economic activity in Pakistan has declined significantly as Pakistanis are spending more time indoors amid social distancing.

The SBP, citing data from Google Community Report, said activity to retail and recreation fell 63 percent, parks 42 percent, mobility to workplaces 26 percent, mobility to grocery and pharmacy 48 percent and transit stations 57 percent, whereas mobility to the residential increased 17 percent.

“These developments imply that the economic growth may have severely been hit by a crisis,” it said. Last month figures also pointed to a noticeable slowdown in the domestic economic activity as well as inflation.

In March, auto sector declined 69.6 percent, petroleum 31.4 percent, cement sales 14.3 percent, food exports 25.7 percent, high value-added textile 15.3 percent and low value-added textile 32.5 percent.

After remaining on a broadly an upward trend in 2019, the inflation has begun to moderate since February 2020. “For the general public, it would help keep their purchasing power from hurting too much,” said the SBP. “Moreover, from the monetary policy perspective, falling inflation has provided room for the central bank to cut policy rate. The monetary policy committee of the SBP has been acting proactively to remain ahead of the curve and keep the inflationary pressures in the economy contented.”