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October 16, 2020

Rupee hits near 5-month high on strong dollar inflows

Business

October 16, 2020

KARACHI: Rupee hit a near five-month high on Thursday, as robust dollar inflows on account of higher remittances, greenback weakness against global currencies, and gradual economic recovery post-lockdown propped up the local currency.

The interbank market saw rupee climb to 162.86 versus the greenback, its highest since May 29. It gained 0.3 percent or 62 paisas during the session, whereas it had closed at 163.48 on Wednesday.

Traders said increased use of legal channels by overseas Pakistani workers for sending remittances amid crackdown on hundi and hawala money transfer system, inflows in the Roshan Digital Accounts (RDA) from expatriates, expectation of sustained improvement in the current account balance and struggling dollar in international market, were all contributing factors in the rupee’s rise.

“The demand for the greenback remained subdued due to fewer import payments,” said a trader with a large commercial bank.” The supply of the greenback is pretty good for now, exceeding the demand.

“Reports about the rescheduling of external debt servicing sounded positive for the market,” the dealer added.

The rupee gained 30 paisas against the dollar to close at 163.40 against the dollar in the open market.

“The PKR is getting strong due to healthy remittances that have sustained above $2 billion for a few months now. Other than remittances, there is considerable excitement around the Roshan Digital initiative as well,” said Saad Hashemy, an executive director at BMA Capital.

Analysts said it seemed like non-resident Pakistanis were opening digital accounts (RDA) more than expected for sending remittances back home to their families, making investment in Naya Pakistan Certificates, including undertaking other payment activities using these accounts. However, there was no data and source available to quantify the inflows coming in through RDA.

The chances of further slowdown in divestment of portfolio investments from the country was also helping drive the rupee up.

Analysts said the rupee has gained steadily during the last month, defying all odds, pinned on the age old mantra of demand and supply, gaining roughly two percent month-on-month. It has strengthened by Re5.57 since August 2020. The rupee hit a record low at 168.43 to the dollar in August.

“With no significant change in supply other than remittances, dollar demand has indeed been suppressed owing to a lull in oil payments and an expected CA (current account) surplus in September,” said Faisal Mamsa, CEO of Tresmark.

Wednesday’s news about rescheduling of $1.8 billion external debt servicing till June next year has further bolstered the surging rupee, Mamsa said. Since there has been a change in direction, importers have held on to settling their imports and exporters were selling dollars in forwards aggressively.

The greenback has also witnessed weakness in international markets much due to the start-stop mode on US fiscal stimulus depreciating against most major currencies, he noted.