Why Pakistan's rupee has soared the most against the US dollar among global currencies
- The Pakistani rupee has become the top performer in global currency markets.
- It gained 8% from a record low in early September, after a government clampdown on illicit dollar trade.
The Pakistani rupee has surged to the top of global currency markets, sharply increasing from a record low in early September.
The rupee has gained 8% since then, climbing from 307 against the dollar to 275. The rebound has made the rupee September's top global performer, based on LSEG data cited by CNBC.
According to a presentation from Indian lender HDFC Securities, the strong rebound stems from the Pakistani government's response to illicit dollar transactions.
"Pakistan's rupee was the top performer globally this month as a government crackdown on the illegal dollar trade helped reverse its fortunes," it said. "The rupee surged almost 6% in September, a remarkable feat as most currencies including the Thai baht and South Korean won tumbled against the dollar on speculation US interest-rates will stay elevated for longer."
Ahead of the clampdown, dollars were being bought and sold in informal markets, deteriorating the rupee exchange rate, local media reported.
This prompted Pakistan's Federal Investigation Agency to launch a raid on exchange companies throughout the state, closing down shops and arresting a number of those involved.
After the operation, demand for the rupee has returned, and Pakistani banks have reported growing remittances and increased inflows.
But the long-term prospects of the rupee's rally are largely uncertain, as Pakistan's underlying economic situation is shaky — the country is weighed down by substantial debt loads, it's GDP is estimated to contract for fiscal year 2023, and its foreign reserves have been depleting.
Meanwhile, Islamabad is grappling with multi-decade high in average headline inflation, which rose to 29.2% year-over-year in fiscal year 2023, the World Bank reported.
The inflation rate rose to 31.4% year-on-year in September, government data showed.
However, part of this was owed to currency weakness, potentially making the rupee's strength a welcome sight for the country's consumers.