Rupee recovers 1.4 percent on prospects of dollar inflows

KARACHI: Rupee rose 1.39 percent to 131.93 per dollar on Friday as the local currency clawed back some losses on a credit commitment by a central Asian country, robust remittances and prospects of IMF’s bailout.

State Bank of Pakistan (SBP) Spokesman Abid Qamar, however, said the appreciation in the exchange rate is linked with the improvement in

supply of the greenback and positive sentiments in the foreign exchange market.

“The exchange rate movement is influenced by demand and supply position on a daily basis,” Qamar added.

Traders said the three positive developments let the market ignore latest foreign exchange numbers that showed another $100 million weekly depletion in official reserves.

The reserves held by the SBP

declined to $8.308 billion as of

October 5 from $8.408 in the previous week.

The rupee went up following the reports that Azerbaijan offered Pakistan an open credit line of $100 million for the purchase of petroleum products, the traders added.

“Investor sentiment turned bullish on reports of Azerbaijan open oil credit facility for Pakistan,” a dealer said.

“This will help provide some comfort to the country’s shrinking foreign exchange reserves.”

On Tuesday, rupee lost eight percent of its value against the US dollar in a latest single day battering. The local currency lost a cumulative 26 percent since December last year.

In the open market, the rupee traded at 132 against dollar compared with 133.50 in the previous session.

Traders said expectations that Pakistan would obtain $7 to 8 billion in fresh loans from the International Monetary Fund (IMF) in the middle of December that also boosted investor confidence.

Pakistan has made a formal request to take financial assistance from the Fund to address the economic challenges.

The IMF team will visit Islamabad in the coming weeks to initiate discussions for a possible economic program.

There are also reports that China is likely to provide $1-2 billion loans to the country, according to some dealers.

“The government is seeking funding from other friendly countries along with IMF money, which could also be utilised given the IMF’s letter of comfort,” a dealer said.

“Investors, however, are concerned about the Fund’s views on CPEC (China-Pakistan Economic Corridor) that showed increased Chinese involvement in Pakistan’s economy could bring both benefits and risks.”

Dealers said the rise in rupee is supported by robust growth in remittance flows and smooth dollar supplies.

Workers’ remittances surged 13.14 percent to $5.419 billion in the first quarter of the current fiscal year of 2018/19.

Fawad Khan, director of Research and Business Development at BMA Capital said exporters are most likely selling dollars following devaluation.

Some bankers, however, believe that the strengthening in the currency is a short-term phenomenon.

“Market will settle around these levels for quite some time before rallying upward to new levels of around 140 in the coming days, when IMF deal is finalised,” a banker added. “Higher debt payments would keep pressure on rupee in the months to come.”