Rupee posts recovery amid last-minute rescue

KARACHI: Rupee managed to pare some losses on Friday after touching an all-time low during intraday trade, as the central bank apparently stepped in to rescue the local currency and foreign inflows lent a support.

The rupee recovered a tad 0.35 percent or 59 paisas to close at 165.54 per dollar in the interbank market. The local currency hit a life-low of 169.50 in early trade. It had lost 2.8 percent to finish at an all-time low of 166.13/dollar in the previous session.

Dealers said the central bank injected ‘huge’ supply in the market to stem the rupee fall. “Along with the SBP (State Bank of Pakistan), exporters also stepped in to sell $50 million in the interbank foreign exchange market,” a dealer said, requesting anonymity.

However, the rupee lost Rs5 to end at 165 versus the greenback in the open market. Analysts expect the currency to remain volatile as monetary easing and hot money departure are likely to keep up the downward pressure on the rupee in the near term. But, they expect bulk dollar sales to prevent sharper falls in times to come.

“We believe the SBP would intervene in the PKR market to support it in the coming days,” Zeeshan Azhar, an equity research analyst at Foundation Securities. “If SBP sells dollars from its reserves, it would create excess supply of dollars in the market and reduce the PKR-US$ exchange rate. Market participants have previously not tried to bet against the SBP or tried to out buy the SBP selling. They are unlikely to do so this time around.”

The SBP’s foreign exchange reserves stood at $12.76 billion as of February, compared with $7.28 billion as of June-end last year. The rupee remained stable for almost a year due to change in exchange rate system from fixed to market-based in May last year. But, the currency started weakening after March 6 as foreign investment preferred not to roll back their investments in Pakistani debt market.

In March alone, foreign investors dumped $1.558 billion of investment in government securities. However, net investment in treasury-bills since the start of this fiscal year stood at $1.54 billion

Currently, foreign investors are rushing to safe-haven assets amid growing fears of coronavirus outbreak and drop in the yields on government short-term debt after hug monetary easing by the SBP. The SBP delivered significant back-to-back 225 basis points cut in interest rates in a week.

As of Friday, the rupee depreciated a cumulative Rs11 to 165 against the dollar. It depreciated Rs6 to 165 since Tuesday (March 24) Saad Hashmey, executive director at BMA Capital said the recent spell of hot money outflows is not a sign of worry for Pakistan.

“Globally, the dollar has strengthened and there is a move towards safety. And also exit of investors is primarily due to the onset of COVID-19 concerns,” Hashmey said. “These are challenging times. We are in a health emergency. Pakistan's economic footing was strong before the country entered the pandemic.”

Last week, the SBP said the net reserves buffer of the central bank was more than sufficient to cope with any portfolio outflows in any orderly manner. Analysts believe the current account deficit is likely to improve further in coming months. “Due to the corona virus pandemic, current account deficit is expected to improve,” Azhar of Foundation Securities added. “Imports are expected to decline by more than exports and remittances combined.”