Goldman Sachs Group Inc. has issued a warning regarding the recent gains in Pakistani rupee and believe that those are 'short-lived'.
While the Pakistani rupee has been one of the top-performing currencies globally over the past two months, Goldman Sachs believes that these gains may not be sustained due to the country's financing risks.
The rupee fell to a record low of 307 to the dollar in early September. But since then, it has gone up over 8% and now trades at 280 to the dollar.
This is the biggest increase of any currency in the world over the past month. The main reason for this is that the government has stopped illegal trading of dollars.
However, according to a report by Goldman analysts led by Kamakshya Trivedi, the recent appreciation of the Pakistani rupee is expected to be short-lived.
They attribute this projection to the increasing interest costs faced by Pakistan and the existence of only short-term arrangements with the International Monetary Fund (IMF) and bilateral financing to maintain the country's external balance.
This is because investors are worried about the political uncertainty in Pakistan and a change in government after planned elections. They are therefore buying up Pakistani rupees in the hope that they will be worth more in the future.
This increased demand for Pakistani rupees is pushing up the value of the rupee against other currencies. This means that it will cost more Pakistani rupees to buy goods and services that are priced in foreign currencies.
The report is warning that this trend is likely to continue in the lead-up to the election, so people should be prepared for higher prices.
Goldman Sachs said that the Pakistani rupee is likely to go down again in the future because the country is having trouble paying its debts and keeping its economy stable.
