There is growing pressure on the central bank from the authorities in the twin cities to lower interest rates and simultaneously appreciate the exchange rate.

Meanwhile, the State Bank of Pakistan is working hard to build foreign exchange reserves by buying from the market. In economic theory, these three objectives are impossible to achieve simultaneously, and any forced effort could lead to another crisis. According to one of the most senior bankers in the country, they are trying to defy gravity.

The PKR has slightly appreciated against the USD in recent weeks, while authorities are attempting to control exchange rate stress through negotiations with exchange companies and banks. However, this is not the right strategy and may not be sustainable.

The PKR/USD exchange rate was 284 in March 2023, and after more than two years, it stands at 282. There has been no depreciation in the currency during this period, mainly due to the SBP increasing the policy rate to 22 percent and maintaining positive real rates for most of the time. This attracted capital to the PKR and reversed........

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