KARACHI: The rupee extended gains on eighth straight day, tracking comments from the finance minister that the currency to post more gains and would trade below the 200 level against the dollar in coming days, traders said.
The local unit on Tuesday rose 1.65 rupees or 0.73 percent versus the greenback in the interbank market. It ended at 225.64 to the dollar, compared with Monday’s close of 227.29.
In the open market, the domestic currency gained 1.50 rupees to settle at 228.50 per dollar.
“There is no fundamental rationale for the rupee to appreciate continuously as the foreign exchange reserves depleted fast and pledged aid inflows from bilateral and multilateral creditors have not been materialised yet,” said a forex trader.
“The rupee’s correction reflects bullish sentiments of market players. The recently appointed finance minister’s return and its statements that the rupee is undervalued and will grow stronger supported the rupee,” the trader added.
The fresh statement from Dar that the actual value of the rupee was less than 200 and it would be brought down, as it was currently undervalued further propped up the currency as the dollar sales by the exporters continued to underpin sentiment, improving supplies in the market, according to traders.
The rupee has appreciated by 6.08 percent against the dollar in the last eight sessions. It has risen 1.25 percent so far this month.
Though strengthening of the rupee value would be Dar’s top priority followed by lowering the inflation and interest rates to revive the economy, the market will look at how the finance minister to intervene in the currency market to maintain the rupee's stability given the country's low foreign reserves and market-based exchange rate regime.
The International Monetary Fund has been much stricter in terms of policy implementation as Pakistan currently has a free exchange rate environment regime. The country has record-low foreign exchange reserves and no room to use them to control the exchange rates.
Dar has warned speculators from manipulating the currency. According to reports, an exposition will be presented to the finance minister soon on how banks generated enormous profits by selling dollars. Importers were reportedly charged higher rates by banks to open letters of credit.