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Monday February 06, 2023

Ailing rupee rallies on IMF loan hopes

By Our Correspondent
August 02, 2022

KARACHI: The rupee surged by 2.41 percent against the dollar in the open market on Monday, pulling away from a record closing low set last week, following a finance minister’s statement over the weekend that improved trade balance in July will reduce pressure on the struggling currency.

Imports fell 35 percent month-on-month to $5 billion in July. The rupee closed at 242 in the kerb market, ending a two-week losing streak against the dollar. Rupee ended at an all-time low of 248 per dollar on Friday.

Dealers said the local unit was able to post a significant one-day gain, following the interbank rupee's strength. It extended gains for the second consecutive session to end at 238.84 versus the greenback in the interbank market. It appreciated by 0.22 percent during the session.

The rupee has been struggling with a higher current account, fiscal and trade deficits and fast depletion in the foreign exchange reserves. It was beaten as the worries about political uncertainty delaying the IMF bailout for the country rattled the markets.

The rupee plunged 14.4 percent in July, suffering its worst month since 1972. Dealers said the rupee started to bounce back helped by matching demand and supply of the dollars in the market. Some ease in political uncertainty, hopes for early release of the International Monetary Fund money, decline in imports, and soothing remarks by the finance ministry and the central bank on the state of the economy supported the local unit.

“The rupee gained ground aided by the expectations that Pakistan would be able to secure the funding from IMF soon following the country’s army chief contact with the US to use its leverage to do so to fend off economic crisis,” said Zafar Paracha, the secretary general of the Exchange Companies Association of Pakistan.

“The currency recovered after Finance Minister Miftah Ismail said imports fell in July due to ban on non-essential items, saying the expected improved import bill in the coming months will help ease pressure on the rupee.”

The rupee should recover further in the days ahead if it has not been devalued intentionally or one of the prior actions of the IMF, Paracha added.

A joint statement issued by the Ministry of Finance and the State Bank of Pakistan on Sunday said Pakistan’s problems are temporary and are being forcefully addressed.

“Going forward, as the current account deficit is curtailed and sentiment improves, we fully expect the rupee to appreciate. Indeed, this was the experience during the beginning of the IMF programme in 2019, when the rupee strengthened considerably after a period of weakness in the lead-up to the programme,” it said.

“The rupee can overshoot temporarily as it has done recently. However, it moves both ways over time. We expect this pattern to re-assert itself in the coming period. As a result, the rupee should strengthen in line with improved fundamentals in the form of a smaller current account deficit as well as stronger sentiment.”

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