Rupee hits one-month high amid positive economic signals

KARACHI: The rupee rallied to a near one-month high against the U.S. dollar on Friday, buoyed by improved inflows and a rise in foreign exchange reserves, closing at 284.97 to the dollar, its strongest level since November 3.

The local currency, which had ended the previous session at 285.17, appreciated by 0.07 percent during the day’s trading. In the open market, the rupee gained 50 paisas against the dollar, with the selling rate reported at 286 per dollar, up from 286.50 on Thursday, according to the Exchange Companies Association of Pakistan (ECAP).

Market dealers noted that while dollar sales by exporters contributed to a slight increase in supply, the rupee’s recent gains are largely attributed to positive economic indicators and developments. The State Bank of Pakistan’s foreign exchange reserves saw an increase of $77 million, reaching $7.257 billion for the week ending November 24.

The country's total reserves climbed by $91 million to $12.393 billion, with commercial banks’ reserves also rising by $14 million to $5.136 billion Some bankers have indicated that the central bank has been purchasing dollars from the currency market to bolster reserves and meet external debt obligations.

Saudi Arabia has recently extended the term of a $3 billion deposit it placed with the SBP for another year. The deposit is set to mature on December 5. The Saudi deposit renewal will help maintain the cash-strapped country’s foreign reserves and deal with external account issues.

The money was deposited by Saudi Arabia as a loan into the SBP in 2021, and it was rolled over in 2022. Zafar Paracha, the secretary general of ECAP, expressed optimism about Pakistan’s economic outlook, citing the rupee’s strength as a reflection of growing investor confidence.

“The local stock market’s robust performance and the extension of Saudi deposits have reinforced faith in the country’s economy,” Paracha said. "The interbank supply has improved as a result of the open market selling the banks $300 million in November."

Anticipation surrounds the upcoming International Monetary Fund’s tranche expected next week, promising an additional enhancement to the forex reserves, said Chase Securities in a note.

The government's surpassing of the July to November 2023 tax collection target has instilled confidence among market participants, aligning with the key IMF target of revenue collection, it added.