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SBP intervenes with ‘sizeable amount of dollars’ to defend rupee

June 29, 2019

KARACHI: The rupee rebounded sharply on Friday, posting its biggest daily percentage gain against the dollar in years after the central bank sold foreign currency in “quite a sizeable amount” to pull the exchange rate back from an all-time low, traders said.

Domestic currency closed at 160.05/dollar, 2.43 percent stronger than Thursday’s close of 164.05 in the interbank market. In the open market, it gained Rs3.50 to close at 161 against the dollar from 164.50 in the previous session.

Traders said rupee strengthened on the back of an apparent intervention from the State Bank of Pakistan (SBP), following Prime Minister’s Imran Khan meeting with SBP Governor Dr Reza Baqir held on Wednesday.

“The SBP intervened in the foreign exchange market with a sizable amount through banks and authorised exchange dealers and carried out the necessary measures to control the exchange rate,” a senior banker said. He, however, declined to disclose the amount SBP had pumped into the interbank market.

The central bank's spokesman also declined to comment on SBP’s possible intervention to defend the battered rupee.

The rupee has lost more than 50% of its value since December 2017, stoking inflation and putting pressure on the central bank to curtail devaluation. The country has ballooning current and fiscal account deficits and has seen repeated devaluations of the rupee.

Traders said pressure on the currency also eased as oil firms and other corporates, which settle import payments towards the end of each month, stepped down dollar purchases. Moreover, most exporters offloaded greenback towards the end of the fiscal year, which increased inflows.

“Rupee appreciated sharply by Rs4 against the greenback in the late trading hours,” a dealer said.

Yaqoob Abubakar, an analyst at Tresmark said the recent rise in the currency was backed by some inflows and ease in payment, which helped it gain against the dollar.

“It seems that rupee has been adjusted on the back of some inflows … to close 2018/19 fiscal year on some positive note,” Abubakar said. “Market is anticipating that the first week of July will further clear the direction of the parity, whether it will devalue further or maintain on this level.”

Dealers said the SBP seemed to have been waiting for the rupee to weaken to 164 against the dollar to intervene.

SBP chief Baqir had already said that a market-based exchange rate system has been adopted, considering demand and supply factors. However, the central bank would intervene to curb excessive volatility in the market.

Forex Association of Pakistan President Malik Bostan said the rupee also recovered in kerb dealings, tracking the interbank market. “We expect the currency market will settle after July 1, as more foreign inflows are due July onwards,” Bostan said, adding that these expected foreign inflows would ease pressure on the foreign exchange reserves.