Rupee rises as world’s best performer this year

KARACHI: Terming rupee’s becoming world’s best performer in the first quarter of this year as tremendous, analysts on Wednesday however warned against sharp currency movements.

The rupee benefited in a big way from robust foreign exchange inflows from Pakistani diaspora in the form of remittances, Roshan Digital Account, resumption of International Monetary Fund’s (IMF) loan program, issuance of Eurobonds, and anticipated inflows from multilateral institutions.

“PKR has been the world’s best currency against USD from January 1st to March 31st,” said Muzammil Aslam, CEO at Tangent Capital in a Tweet, citing Bloomberg data.

“It’s good to celebrate but it’s equally [a matter of] concern to maintain competitiveness. I’m for gradual changes than abrupt,” Aslam added.

“The sudden fluctuations in the currency don’t give a good signal to the markets and businesses,” he said.

The rupee has strengthened 4.09 percent against the dollar in January to March (trading at 153.55) this year, outperforming its regional peers and various global currencies. It is also one of the four world currencies that have posted gains versus the greenback together with the Canadian dollar, British Pound, Saudi Riyal, and the Norwegian Krone.

The local unit appreciated 3 percent in March.

The Canadian dollar rose 1.09 percent against the dollar in the first quarter of 2021, with the sterling, appreciating 0.64 percent, Norwegian currency 0.23 percent and Saudi currency 0.03 percent, respectively.

The rupee gained 0.22 percent to close at 152.76 per dollar in the interbank market on Wednesday. It had ended at 153.09 to the dollar in the previous session.

The local unit breached the 153 mark after the government received around $500 million ($498.7 million) from the IMF as a disbursement under the Extended Fund Facility for budget support.

The launch of a three-tranche Eurobond deal to raise $2.5 billion, comprising tranches of five, 10 and 30 years also helped aid sentiment, supporting the local unit. The government received $5.3 billion in combined orders for the bonds.

Traders suspected the SBP’s intervention through dollar buying from the market to prevent the sharp rally in the rupee and to support exporters, but it didn’t confirm.

In the open market, the rupee closed at 153.20 versus the greenback, compared with 153.70 on Tuesday.

“The rupee has been appreciating versus dollar due to the lack of dollar demand led by reduced smuggling,” Aslam said.

The speculative elements had been removed from the foreign exchange markets owing to the vigilant and the supervisory role of the central bank, the analyst said.

The limited outflows due to subdued international traveling amid Covid-19 restrictions and remittances coming through official channels also supported the remittances as well as currency.

“In the market based exchange rate system, the currency is influenced by the demand and supply conditions, so, the rupee is expected to be stable in the times to come subject to repayments requirements,” Aslam said.

“Pakistan’s foreign exchange reserves are all set to make new all-time high of $23.5 billion,” he said, referring to the launch of $2.5 billion Eurobonds in the international capital market.

The reserves last time saw $23 billion was in 2015-16. When PTI took over the reserves were at $16.4 billion, Aslam added. The country’s forex reserves increased 1.36 percent to $20.434 billion in the week ended March 19.

Traders expect the rupee to hover around 150 to 152 levels against the dollar in the near term.