Dar blasts supporters of free-floating exchange rate

ISLAMABAD: Deputy Prime Minister and Foreign Minister, Ishaq Dar, strongly criticized advocates of a free-floating exchange rate on Tuesday, asserting that the rupee’s value against the US dollar should ideally range from Rs 235 to Rs 240, based on the country’s real effective exchange rate (REER)”

Dar said the notion that exchange rate depreciation boosts exports is a theoretical myth, as it disproportionately harms the 92% of the economy not engaged in export activities, while only benefiting the remaining 8%. It further perpetuates a vicious cycle that increases costs and undermines economic stability. Pakistan’s exports never benefitted from depreciation because it did not have an exportable surplus,” Ishaq Dar said while addressing a seminar on China At 75 and Its Progress organized by the Pakistan-China Institute here on Tuesday.

In the presence of the Chinese Ambassador to Pakistan and international delegates from other South Asian countries, Dar said that the CPI-based inflation stood at 6.9 percent and the policy rate was ranging at 17.5 percent. There is no comparison between the 6.9 percent and 17.5 percent policy rate, he said and added that the stage was set for a cut in the policy rate. He said that the Monetary Policy Committee (MPC) was an independent body but there was no rationale to keep such a massive margin between inflation and policy rate, with the expectation that the next MPC scheduled to meet in the coming few days would cut the rate accordingly. The deputy prime minister said that he had always taken the stance that Pakistan would never default. The external debt, he said, stood at $130 billion and was much less than 100 percent of GDP whereas US’s debt to GDP ratio stood at 109 percent, UK’s over 100 percent and Japan’s 250 percent of GDP. He said that from September 2022 to August 2023 he stated that Pakistan would not default and was proved right. He said that there was no threat of a conventional war as no one could dare so but conspiracies were being hatched to destabilise the country economically. People are ready for leg pulling.

“I challenge that the exchange rate should be hover around Rs 235 to Rs 240 against US dollar keeping in view REER,” he said. He referred to former Governor SBP Dr Ishrat Hussain sitting among the audience at the event and said that he supported a free float exchange rate but he would always support a stable exchange rate. He also mentioned the name of Dr Ashfaque Hassan Khan and said he also supported the idea of a stable exchange rate. It’s a matter of debate and he could prove that the exchange rate depreciation never helped Pakistan to benefit rather it accumulated a burden as being witnessed through higher inflation in recent years, he said. Pakistan could learn a lot from China on how to lift over 100 million from the poverty trap and bring prosperity to the lives of Chinese people, he added.