Rupee makes suprising recovery of over Rs13 per dollar

In a surprise move, the volatile Pakistani rupee made a sharp recovery of nearly Rs14, closing at Rs285.08 against the US dollar in the interbank market on Friday.

At a point, the rupee had recovered over Rs14, to Rs284 per dollar, however, it closed the session at 285.08 after gaining Rs13.78 The currency partially gained ground after registering a drop of 3%, or Rs8.71, to an all-time low at Rs298.93 a day earlier.

The recovery came following two major developments that took place over the last few hours.

First, according to market sources, the currency gained strength after the demand from importers relatively declined as oil payments were released a day earlier.

Secondly, the Supreme Court on Thursday declared Pakistan Tehreek-e-Insaf (PTI) Chairman Imran Khan’s arrest from a court premises "illegal" and ordered authorities to release him “immediately”.

The political turmoil had worsened the country'soutlook. Moody’s Investor Service sees a risk that Pakistan may default after June if it can’t secure funding from the International Monetary Fund (IMF). 

Explaining the movement of currencies, Dr Khaqan Najeeb, former adviser of the Ministry of Finance, said that currency’s movement in the short term is driven by the sentiments of the investors exporters, importers, remitters (in Pakistan’s case) as well as the inflows from debt creating and non-debt creating instruments.

“In Pakistan’s case, this sentiment over the last two, three days weakened as the country seemed to be in the challenging political situation,” he said, adding that the sentiment probably made people hold their dollars.

Hinting towards a possibility of intervention, Dr Najeeb said that it is possible that the central bank could have rightly intervened to ensure that the disorderly movement of the weakening of the rupee did not continue.

Arif Habib Limited Head of Research Tahir Abbas said that a day earlier, when the rupee touched a historic low of 300, the demand for the US dollar was more because importers had to retire their payments due; however, today the demand is relatively less.

“Less demand coupled with an improved political situation has led to this sharp recovery,” he told Geo.tv.

The local currency market is facing a dollar shortage since last year, with the country's foreign exchange reserves currently enough just enough to cover one month of imports.

The cash-strapped nation of over 220 million people faces delays in securing a loan from the IMF amid an economic crisis. 

Abbas recalled that the local unit lost over Rs20 in last three days; however, the currency has remained volatile since the uncertainties surrounding the IMF programme sparked default concerns.

Therefore, the currency market didn’t react negatively to Finance Minister Ishaq Dar’s statement, in which the senator claimed that Pakistan won’t default even if there is no IMF programme.