Suspected SBP intervention helps rupee recover from record low

KARACHI: The rupee ended 0.41 percent stronger against the dollar on Thursday as a suspected intervention by the central bank helped the local unit recover from the record low hit in the previous session, while approval of the supplementary budget by the cabinet to secure funding from the International Monetary Fund also boosted sentiment.

The rupee rebounded to close at 177.51 per dollar, compared with Wednesday’s close of 178.24 in the interbank market.

The rupee also rose in the open market trade. It ended at 179.50 to the dollar, 80 paisas up from Wednesday’s close of 180.30.

The State Bank of Pakistan (SBP) has apparently pumped dollars in the market to prevent further fall, dealers said.

“It seems finally the central bank stepped in to support the currency and to calm nerves,” said a foreign exchange dealer. The SBP wants a stronger rupee at the close of current year.”

The government tabled a supplementary finance bill or an Rs360 billion mini-budget in the National Assembly, which would remove exemptions on sales tax and impose new duties as part of commitment with the IMF to secure fifth tranche of $6 billion loan progamme.

The PTI-led cabinet had approved the State Bank of Pakistan amendment bill to give more autonomy to the central bank.

The approvals of these two legislations from the parliament are the two major conditions set by the IMF to revive the Extended Fund Facility (EFF).

The government is set to present the sixth review of EFF to the IMF’s executive board, which will meet on January 12 to approve the $1 billion loan tranche.

Analysts said the fulfillment of the prior actions to complete the sixth review offered some comfort to investors, improving their sentiments on the outlook for the rupee.

“Today’s move has improved investor perception about the economy and the rupee as well,” said Faisal Mamsa from Tresmark, an application that tracks financial markets. “There will be more exporters selling dollars in the market.”

Mamsa said the rupee is expected to gain more and rise to 176 levels “if the IMF approves the disbursement of next loan installment.”

Analysts agreed that the rupee’s latest recovery was due to the possible support by the central bank and it’s not aligned with the economic fundamentals.

“The central bank’s intervention could be possible. Nothing on the fundamental front,” said analyst Fahad Rauf at Ismail Iqbal Securities. “Recent week reserve numbers released today also show a decline.”

Pakistan’s foreign currency reserves fell 1.5 percent to $24.3 billion as of December 24. The reserves held by the SBP also dropped 1.6 percent to $17.9 billion. The SBP’s reserves are adequate to pay 2.8 months of imports.

Fears that Pakistan is heading towards a balance of payments crisis have added to pressure on the rupee from a trade deficit that has been widened largely because of hefty imports and high international oil prices.

This has resulted in a weakening rupee, which lost 11.25 percent of its value since the start of this fiscal year.

The SBP recently announced a number of steps to calm investors.

It tightened rules on buying foreign exchange from the forex companies to curb speculative trade.

It also gave forward guidance on the interest rates settings in the latest monetary policy statement and a television interview by the SBP’s governor indicating a pause on further interest rate hikes and liquidity injection into the money market.