Deputy Prime Minister and Foreign Minister Ishaq Dar strongly criticized the advocates of a free-floating exchange rate during a seminar on “China At 75 and Its Progress” organized by the Pakistan-China Institute. He asserted that the value of the Pakistani rupee against the US dollar should ideally be maintained between Rs 235 and Rs 240, based on the country’s real effective exchange rate (REER).
Dar emphasized that the belief that exchange rate depreciation benefits exports is a “theoretical myth,” stating that it disproportionately harms the 92% of the economy not involved in exports while benefiting only 8%. He noted that Pakistan’s exports have not benefitted from depreciation due to a lack of exportable surplus, which perpetuates a vicious cycle of rising costs and economic instability.
Addressing the current economic situation, Dar reported that the Consumer Price Index (CPI) inflation stands at 6.9%, while the policy rate is at 17.5%. He highlighted the stark difference between these figures, suggesting that the conditions are ripe for a cut in the policy rate. While acknowledging the independence of the Monetary Policy Committee (MPC), he expressed that there was no justification for maintaining such a significant gap between inflation and the policy rate. Dar anticipates that the upcoming MPC meeting will likely lead to a rate cut.
