Rupee surges to become world’s top performer in September

KARACHI: Rupee has staged a remarkable comeback from its record low earlier this month, becoming the world’s best-performing currency in September, analysts said on Thursday.

The rupee gained 6.2 percent against the dollar this month, boosted by a crackdown on illegal currency dealers, dollar inflows from exporters and remittances, and expectations of external financing from friendly countries and multilateral agencies. The rupee closed at 287.74 per dollar on Thursday, the highest level since August 10. It had plunged to an all-time low of 307 on September 5, amid political uncertainty and a widening current account deficit.

“The rupee became the best-performing currency of the world during Sep’23, appreciating 6.2 percent against the dollar,” brokerage Arif Habib Limited said in a tweet.

The rupee outperformed most of its Asian peers, which declined against the dollar as the U.S. Federal Reserve signaled it would keep interest rates high for longer. The Thai baht and the South Korean won were among the worst performers in the region, losing more than 2 percent each.

Sana Tawfik, an analyst and economist at Arif Habib Limited, attributed the rupee’s rally to several factors, including the crackdown on the informal grey market, where dollars were traded at a premium over the official rate.

The State Bank of Pakistan also canceled the licenses of a number of exchange companies involved in illegal forex transactions. In addition, exporters sold their dollar proceeds in the interbank market, while hoarders unwound their positions amid fears of further action by the authorities.

Tawfik also cited the prospects of external flows from friendly countries such as China and Saudi Arabia, as well as from multilateral lenders such as the IMF and the Asian Development Bank.

“This rally shall continue for the time being,” Tawfik said “Above measures if continue and when external (projected) flows materialize, rupee might further strengthen.”

However, Fahad Rauf, head of research at Ismail Iqbal Securities, cautioned that the rupee’s appreciation may not be sustainable in the long run, given the country's weak economic fundamentals. He noted that the country’s foreign exchange reserves are still far from comfortable, standing at $7.63 billion as of September 22, barely enough to cover two months of imports. “Pakistan’s currency has been one of the worst-performing in recent years,” Rauf said . “The recent performance is also due to administrative measures, whereas the reserves situation is still far from comfortable.” The rupee also rose in the open market on Thursday, where it traded at 288 per dollar for selling, up from 290 on Wednesday, according to the Exchange Companies Association of Pakistan.