What Causes Inflation of Pakistan from the Perspectives of the IMF and CPEC.

Byline: Vaedy Xiao

Why has the rupee suddenly fallen?

The rupee plunged against the dollar in interbank trading on Friday morning, hitting an all-time high of 144 rupees to the dollar in intraday trading. The national bank of Pakistan intervened to stabilize the exchange rate at 137.7 rupees, Dawn reported. The sources said, the sudden devaluation was based on the government's commitment to the IMF. The IMF has asked the government to set the rupee at 145 to the dollar and set the interest rate at 10.5 percent as a precondition for the rescue package.The plunge suggests that the government is complying with the IMF's demands.

That evening, finance minister Asad Umar addressed the issue, suggesting that the national bank of Pakistan set the exchange rate and blamed the previous policy problems. He thought that devaluation caused by a variety of reasons, including increased foreign debt, reduced foreign exchange reserves and weak exports. "We have artificially revalued the rupee by buying dollars and started to import vegetables, while which eventually caused the problem that we cannot export excess sugar and wheat without subsidies." said Asad Umar. And he also said, "You can't control the exchange rate forever and even under the previous government, the rupee lost 28 rupees against the dollar. So,we have two options, either keeping the rupee under control or devaluing it. " But he also acknowledged that a weaker currency isn't a good thing because it intensified inflation. At last, he said that the devaluation, combined with other policies of the government, would produce good results.

The sudden drop in the value of the rupee has caused panic in the markets. The national bank of Pakistan said it would continue to keep a close eye on the trend and "ready to intervene " to prevent any unnecessary fluctuations in the foreign exchange market.

It was the first significant devaluation of the currency.The rupee fell as low as 133.64 to the dollar on Oct. 9. The central bank devalued the rupee by 5% in December 2017 and 5% in March 2018.

Jihad Azour, head of the international monetary fund's Middle East and central Asia department, said Pakistan's economy was expected to slow sharply and put pressure on overall economic growth in the region. Mr Azul said, rising debt were becoming an urgent challenge to macroeconomic stability in many oil-importing countries, and that high debt were also limiting fiscal space for investment in areas such as...