Tuesday June 25, 2024

Rupee strengthens against dollar

In the interbank market, rupee appreciates Rs2.95 or 1.08% against the dollar to close at 273.33

By Business Desk
February 08, 2023
A representational image of the rupee and US dollar notes. — AFP/File
A representational image of the rupee and US dollar notes. — AFP/File

As the market seems to be hopeful of a positive outcome of the ongoing talks between the coalition government and the International Monetary Fund (IMF), the Pakistan rupee gained ground against the US dollar on Wednesday.

In the interbank market, the rupee appreciated Rs2.95 or 1.08% against the dollar to close at 273.33, according to the State Bank of Pakistan (SBP), up from yesterday's close of 276.28. Meanwhile, the local currency closed at 279 in the open market.

Islamabad began its formal talks with the global lender last month to discuss an economy-rescuing plan that also includes an instalment of a $1.1 billion loan payment from a $6.5 billion bailout package, which was designed to ward off Pakistan's economic meltdown in 2019.

To meet the IMF's demand for the much-needed loan, the government has already hiked up the price of petroleum products which will move the already record-high inflation upwards and increase the rates of power, gas and other commodities that are also in the pipeline.

The bailout package is critical for the nation of 220 million as the State Bank of Pakistan-held foreign exchange reserves are at a critical level of around $3 billion, for the week ended January 27, which is enough to cover imports for less than a month.

In conversation with The News, Ministry of Finance’s former adviser Dr Khaqan Hassan Najeeb said it is crucial that dollar flows from IMF, bilateral, and multilateral improve in a sustained manner so that there is more of an orderly movement of the rupee in the future.

"In a market-based exchange rate, movement of the currency is highly-dependent on fundamentals, supply and demand and the market sentiment," Najeeb added.

In a recent note, Arif Habib Limited said that after months of artificially managing the exchange rate, the government finally caved into IMF’s key pre-condition to resume talks allowing the rupee to float freely in late January.

This, it said, led to the rupee's depreciation of around 17% cumulatively since January 23, with the rupee remaining volatile as foreign exchange reserves continue to hit new lows.

"Given the ongoing talks with the Fund until Feb 9 and negotiations on major fiscal reforms, we believe the PKR will continue to remain volatile in the short term stabilising as IMF review concludes and other bilateral and multilateral flows start pouring in."

"Given significant deterioration in external reserves position and repayments of more than USD 2bn of commercial debt previously anticipated to be rolled over, we now expect Jun-23 and Dec-23 PKR/USD closing rate of 275 and 290 respectively."