Rupee hits 1-year high of 157.1 versus dollar

KARACHI: Pakistani rupee hit one-year high of 157.13 against the US dollar in the interbank market as foreign debt inflows and robust remittances helped the local currency regain some losses, analysts said on Wednesday.

“Appetite for hard currency for payment from importers was muted,” said a foreign exchange dealer at a commercial bank.

“The supply of dollars remained higher than the demand, which pushed the rupee higher against the greenback.” In the interbank market, the current is the strongest level since March 9 last. Rupee was up 0.5 percent from the previous close of 157.85.

The local currency increased 6.7 percent or Rs11.3 against the dollar since August 26 last when it hit a record low of 168.43. The rupee has increased 0.57 percent so far this week.

In the open market, rupee closed at 157.35 compared with Tuesday’s close of 157.35.

BMA Capital Executive Director Saad Hashemy said the rally was likely due to continued buoyancy in remittances and re-initiation of the International Monetary Fund’s (IMF) loan program after one year.

The IMF and Pakistan reached a staff-level agreement on reforms that will allow the release of around $500 million in loan.

This will be in addition to surge in foreign debts from bilateral and multilateral financial institutions.

Traders said rising dollar inflows could further boost foreign exchange reserves and improve the outlook for the external current account.

Analysts said the decline in the dollar value is likely to help reduce debt burden and fall in imported inflation. However, this ongoing rally in the rupee could make exports relatively non-competitive on pricing.

Exporters are unhappy by a persistent slide in the value of the dollar. Exporters in the textile industry (the backbone of the export segment) are already struggling with sharp increases in cotton and yarn prices and an increase in utilities.

Many traders expect the rupee to make further gains in the coming sessions, touching 156 levels per dollar by the end of this week.

If the central bank doesn’t step in to mop up excess dollar liquidity, traders see the rupee to easily go to 155 in the coming weeks.

IMF said the SBP’s monetary and exchange rate policies have served Pakistan well and were critical in helping to navigate the COVID-19 shock.

“The strengthened international reserves’ position since the start of the program—with gross reserves almost doubling to $13 billion until January 2021 and net international reserves (NIR) increasing by over $9 billion until December 2020—and the shock absorption displayed by the market-based exchange rate, allowed the SBP’s to pre-emptively proceed to a large easing of monetary policy, and a sizeable expansion of refinancing facilities,” the IMF said in a statement.

“The banking system remains healthy, but it will be important for the SBP to continue to remain vigilant and prevent possible financial stability stress as the temporary support is phased out.”

Roshan digital accounts received more than $500 million inflows from non-resident Pakistanis since its launch in September and over 92,000 accounts have been opened from various countries.

The news related to the floatation of Eurobond by the government in international capital markets next month,

the $1.1 billion loan from the International Islamic Trade Finance Corporation for import of oil and liquefied natural gas helped the rupee pick up momentum.