Rupee gains for fourth day on IMF optimism

KARACHI: The rupee rose for a fourth consecutive session on Tuesday, buoyed by expectations of an IMF loan disbursement and a narrowing current account deficit.

The rupee closed at 285.79 per dollar in the interbank market, up 0.76 percent from Monday's close of 287.97, according to the State Bank of Pakistan. In the open market, where, the rupee gained 0.09 percent to 287.25 per dollar, data from the Exchange Companies Association of Pakistan showed.

Dealers said the rupee was supported by increased dollar inflows from exporters, who anticipated further appreciation of the local currency as Pakistan's external position improved.

They said the rupee's upward trend was also driven by optimism about Pakistan's economy in the wake of the IMF agreement for the next loan tranche under the existing loan programme.

"The rupee is gaining momentum as the IMF board is likely to approve the next tranche of theloan programme in December, which will boost the foreign exchange reserves and ease the pressure on the balance of payments," said a currency dealer.

“Exporters kept selling dollars in the expectation that the rupee would strengthen in the coming days as planned financing from bilateral and other multilateral partners is anticipated to arrive in Pakistan in addition to the IMF payout.”

Pakistan and the IMF reached a staff-level agreement last week for the first review of the $3 billion stand-by arrangement, paving the way for the release of about $700 million.

The IMF programme, which began in July this year, aims to stabilise the economy and support structural reforms, including a flexible exchange rate regime.

Pakistan's current account deficit, a key indicator of external vulnerability, narrowed to $74 million in October. However, analysts warned that the rupee's appreciation could hurt the competitiveness of exports, which are vital for Pakistan's economic recovery.

“Despite normalising the release of import LCs [letters of credit], the CAD remains under control,” said Chase Securities in a note. “The Real Effective Exchange Rate (REER) has climbed to 98.6 but still sits below 100. This indicates that there's limited room for currency appreciation. Maintaining a competitive edge in exports requires avoiding an overvalued currency,” it added.