KARACHI: The rupee recovered 1.47 percent against the US dollar in the interbank market on Wednesday after Saudi Arabia pledged a six billion dollar of financial support to stabilise Pakistan’s ailing economy, traders said.
The State Bank of Pakistan (SBP) said the rupee ended at 132.03 per dollar compared with Tuesday’s close of 133.91.
A trader said the news of an agreement with the Saudi government boosted sentiment, forcing exporters to sell dollars in the market, while the rupee also gained strength from a rally in the equity market.
“There was no big buying, but there were some forward trades from importers to capitalise on a weaker US dollar against rupee.”
Pakistan on Tuesday reached an agreement with Saudi Arabia on a rescue package, including $3 billion for balance of payment support for a year and another $3 billion/year on account of oil import deferred payment for three years.
Traders said the rupee rose to 132.25/75 in an intraday trading. It increased 1.56 percent to 131.80 in the open market.
Market watchers said the local currency has started to stage a meaningful correction after having been heavily strained in the past two weeks. They believe the rupee will trade at 130-132 levels before a bailout talks with the IMF in November.
“Much of the fate of dollar rupee parity now hinges on the PM’s (Prime Minister) visit to China early next month,” an analyst at Tresmark, an application that tracks financial markets, said.
“The objective of this visit is to make structural changes to avert balance of payment crisis by boosting exports and avoid going to the IMF,” the analyst said. “A favourable outcome of the meeting can translate into rupee appreciation. If not, then Pakistan will have to pursue IMF and meet its stringent conditions pushing the dollar to 140 against the rupee.”
The SBP told a senate body on Tuesday that rupee devaluation led to reduction of 1.6 percent in trade deficit and 2.6 percent in current account deficit in the July-September quarter.
The central bank let the rupee depreciate by more than 25 percent against dollar since December 2017 in a response to the worsening current account deficit that reached $18 billion during the last fiscal year. The current account deficit, however, fell to $3.665 billion in the first quarter of the current fiscal year from $3.761 billion a year earlier. Ex-finance minister Shaukat Tarin said the rupee appreciation was a reaction to the announcement of the Saudi bailout package for Pakistan.
“The premier visit to China along with the Saudi’s support would stabilise the economy,” Tarin added. “It may ease pressure on the government while having negotiations with the IMF next month.” The country has lined up financial helps from the IMF as well as the friendly countries such as China and Saudi Arabia after its foreign exchange reserves plunged to $8 billion, only enough to pay for less than two months of import bills and debt repayments.
Total foreign exchange reserves fell 1.60 percent to $14.613 billion as of October 12.
The reserves held by the SBP decreased $219 million to $8.089 billion due to external debt servicing and other official payments.
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