KARACHI: Rupee strengthened over 4 per cent against dollar in the open market, which is the best gain in almost a decade, buoyed by an unconfirmed report that China has agreed to lend at least $2 billion to shore up the fast depleting foreign-exchange reserves.
The rupee rally was also supported by reports that the Islamic Development Bank (IDB) also agreed a three-year $4.5 billion oil-financing facility. The finance ministry didn’t respond to media reports.
The rupee appreciated by 4.3 per cent to dollar – Rs 122= 1 $US – compared to Friday’s price of Rs 127.50 after moving in the range of Rs122.24-Rs 123.86 in the session. It was the highest gain in a single day trade since October 2008.
Meanwhile, the current account deficit widened 42 per cent to $18 billion in the last fiscal year, bringing foreign reserves down to meet only two months of import cover. The deteriorating external account position emboldened a need for foreign funds to support balance of payments.
The previous government said the incoming government might decide about the IMF’s bailout. The country successfully completed $6.7 billion of extended fund facility loan program of IMF in 2016.
The rupee lost more than 20 per cent against the dollar since December 2017. Analysts termed the devaluation as a logical and timely step to address external account vulnerabilities. The depreciation also helped in recovery of exports and improved competitiveness of exporters.
A currency dealer said the rupee ended at 122 to the dollar, 2.4 per cent stronger than its previous [Saturday’s] close of 125. “There is a sluggish dollar demand in the market. Moreover, there are reports that China has given a green signal to provide approx $2 billion external financing,” he added.
“The Islamic Development Bank is also reported to have been approved $4.5 billion credit facility support for the country,” he added. Market dealers believe these developments have boosted investor sentiment and propped up their confidence in the economy. They say the IDB has activated its three-year $4.5 billion oil financing facility for Pakistan that will give stability to rupee-dollar exchange rate in the interbank market that has largely remained under pressure.
Mohammed Sohail, chief executive officer of Topline Securities Ltd, said the news flow regarding loan from China and the possible assistance from Saudi Arabia is helping foreign exchange market sentiments. In the interbank market, the rupee surged by 2.2 per cent to close at Rs 125.04, compared with previous close of 127.86.
The authorities were already hoping a short-term commercial borrowing from China. The country received $1 billion deposit from Beijing a few months ago. The central bank spokesman hasn’t confirmed the reports of foreign inflows, saying the recent rise in the currency is due to slowdown in the foreign currency demand, improvement in the supplies of dollars and the measures taken by the central bank to curb heft imports.
The State Bank of Pakistan on July 16 imposed 100 per cent cash margin on the imports of non-essential items for the consumers in its latest attempt to curb a hefty trade deficit that is depleting foreign exchange reserves at a fast pace.
A recent crackdown by the law enforcement agencies against the illegal money changers and sealing Afghanistan and Iran borders with Pakistan during the last three to four days due to elections also increased the dollar supply to the kerb market.
