Rupee gains for second day; few see sustained rebound

KARACHI: The rupee rose for a second consecutive session on Wednesday, boosted by dollar selling by exporters, although month-end dollar demand from oil firms could limit a sharp rally in coming days.

The rupee closed at 205.12 to the dollar in the interbank market, up 0.85 percent from the previous close of 206.87. In the open market, the currency rose by 1.50 rupees. It ended at 205 per dollar, compared with 206.50 on Tuesday.

Dealers said the local unit extended gains for a second consecutive session due to an increase in the supply of dollars and easing demand from importers.

However, they added that expected dollar purchases from oil companies are expected to curb rupee gains.

“There have been some good dollar supplies as exporters sold greenback in the market who fear losses in case the rupee appreciates further as Pakistan is inching close to secure the funding from the International Monetary Fund,” a currency dealer said. “This supported the domestic currency”

“We didn’t see a significant demand for the dollars from importers, showing that they had already covered their fiscal year-end payments,” the dealer added.

Market players’ sentiment changed from extreme negative to slight positive on rupee after a $2.3 billion commercial loan agreement with china, whereas a staff level agreement on seventh and eighth reviews under IMF $6 billion bailout programe, likely this week, may lead it to extreme positive.

Analysts said the government desires to strengthen the rupee where it appears to trade below the 200/$ within a matter of weeks.

“The ‘desire' can be inferred from frequent interventions (both verbal and by injection) to bring USD/PKR down,” Tresmark said in a weekly report.

“Indeed, a stronger rupee addresses some of the pressing points currently faced by Pakistan.”

Tresmark said globally, central banks are using interest rate changes and balance sheet/reserves actions to indirectly strengthen their currencies. “These deliberate policies are aimed rather than boosting growth, to tame inflation down and slow down domestic demand to survive the current economic crises,” it added.

“While 60 central banks have aggressively raised interest rates this year, developed countries are using indirect measures to strengthen their currencies. Economists have coined this as 'Reverse currency war,” it added.

Though Pakistan does not have the luxury of reserves, it is seeking a sharp cut down in the opening of fresh import letters of credit and other interventionary tactics to bolster the rupee.