Rupee outperforms world currencies in August so far

KARACHI: The battered rupee has been the best performing currency in the world so far this month amid growing confidence that the stalled IMF (International Monetary Fund) bailout was almost at hand.

The local unit gained 1.51 rupees or 0.71 percent to close at 213.98 per dollar in the interbank market on Monday. The appreciation was more noticeable in the open market where it rose by 3 rupees. It ended at 210 to the dollar, compared with 213 on Friday.

The rupee rose 11.12 percent against the dollar as of Monday, August 15, outperforming major global currencies. The local currency is continuously surprising on the upside after plunging to a record low of 240 per dollar in late July, becoming the worst performing currency in the world. It slumped 34 percent in July alone, suffering its biggest monthly fall since five decades.

“After months of economic and political uncertainties, [I am] happy to see Pakistan rupee and stock market being top performers so far in August beating all other countries based on Bloomberg data. Rupee is up 11 percent, while the KSE-100 Shares Index is up 22 percent in dollar terms,” said Mohammed Sohail, CEO at Topline Securities, on his official Twitter handle.

Pakistan’s rupee is one of the 14 world currencies that have posted gains versus the greenback together with Madagascar’s ariary, Israel’s shekel, Ugandan shilling, and Colombian peso.

Against the greenback, the ariary appreciated 5.42 percent, shekel 3.79 percent, Ugandan shilling 2.84 percent, and Colombian peso 2.64 percent, respectively. Analysts said the rupee is out of the woods and appear to have stabilised from the sharp losses.

“We see the resumption of the IMF programme and mean reversion in commodity [global] prices to act as crucial confidence builders,” said Fahad Irfan, the research head at Alfalah CLSA Research.

“The recent developments with the IMF are encouraging; Pakistan has reached staff-level agreement with the IMF. Board approval is likely since friendly countries have confirmed $4 billion inflows,” Irfan added.

This has calmed the forex market, where the currency recouped by 25 rupees against the dollar in the last 10 trading sessions. “Looking forward, we see FY2023 current account deficit to settle around $10.5 billion, CPI [consumer price index] inflation readings to moderate in the coming months, and rupee/dollar exchange rate to stabilise at current levels. We expect challenges on the balance of payments to restrict growth,” Irfan noted.

The abrupt tightening of US monetary policy is dampening demand, and international commodity prices are moderating. Brent crude oil is down 13 percent and 25 percent respectively from pandemic highs.

“However, rising global interest rates have created an adverse credit environment for Pakistan, which has a gross external financing requirement of $34 billion for this fiscal year,” he said.

The delay in the revival of the IMF programme on the back of political instability and lack of decision-making on reforms needed to unlock the funding from the Washington-based lender, constant depletion in the foreign exchange reserves, and worries about a wide current account deficit exerted pressure on rupee last month.

The foreign reserves held by the State Bank of Pakistan fell by $555 million to $7.83 billion as of August 5, a cover for only 1.12 months’ imports.

Increasing risks about the country’s default on its foreign debt payments if the IMF loan facility doesn’t resume has played havoc with the rupee. Meanwhile, gold prices in the local market dropped by Rs4,300 per tola on Monday.

According to data released by All Sindh Saraf Jewelers Association, gold rates in the local market moved down to Rs134,200 per tola. Similarly, 10-gram gold price also decreased by Rs3,686 to Rs115,055.

A decline in international gold rates also pushed the prices in the local market to fall. In the international market, gold rates decreased by $27 to $1,775 per ounce.

Silver rates decreased by Rs20 to Rs1,540 per tola. The price of 10-gram silver also fell by Rs17.14 to Rs1,320.30. Jewelers said prices in the local market remained below Rs7,500 per tola against the rates in Dubai gold market.

Meanwhile, stocks aimed for the sky after reports that Saudi Arabia’s plans to extend additional financial assistance and renew its $3 billion deposit to Pakistan amid persistent currency clawback, traders said.

Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Share Index gained 764.25 points or 1.78 percent to 43,621.82 points.

The index tested a day-high of 43,651.49 and a -low of 42,857.57 points. Ahsan Mehanti, an analyst at Arif Habib Corp, said bullish activity could be attributed to strong rupee and reports regarding renewal and additional support from the Saudi package.

A global equities rally and renewed foreign interest at PSX ahead of expected receipt of IMF funds, due this month, fired up the sentiment, Mehanti added.

The KSE-30 Index also climbed by 252.73 points or 1.56 percent. Traded shares increased by 168 million to 541.548 million from 373.855 million shares. The trading value jumped to Rs16.836 billion from Rs10.613 billion. Market capital expanded to Rs7.275 trillion from Rs7.173 trillion. Out of 368 active names in the session, 272 advanced, 75 retreated, while 21 made no move.

Topline Securities said the market opened on a positive note and stayed the course through the day, making an intraday high of 801 points on rupee strengthening against dollar, lower world oil prices.

Moreover, plans of renewal of a $3 billion deposit from Saudi Arabia and an additional support of $100 million/month for 10 months in petroleum products fueled the rally at the local bourse, the brokerage said.

According to foreign media, the world’s top oil exporter, which has traditionally provided financial aid to Islamabad, has also agreed to support Pakistan with $1 billion in petroleum products over 10 months.

The assistance could help Pakistan secure a $1.2 billion payment from the IMF, whose board is set to meet this month to approve the disbursement.

The IMF agreed last month to increase its loan package by $1 billion to $7 billion, but has conditioned the disbursement on assurances that Pakistan receives additional financial support from elsewhere.

“Saudi Arabia has agreed to roll over its $3 billion deposits in Pakistan’s state bank [central bank] reserves, which will help to revive the IMF loan,” said a senior government official.

The official said Pakistan, the IMF and Saudi Arabia had also discussed the possibility of Islamabad being able to borrow up to $2.8 billion against Riyadh’s quota of Special Drawing Rights (SDRs) at the fund.

“Once finalised, Pakistan’s extent of borrowing from the IMF during the present financial year [July to June] will increase by $2.8 billion. This will be a very important gesture,” the official said.

HBL, ENGRO, BAHL, TRG, and MEBL were the major gainers in the trading session as they cumulatively added 222 points to the benchmark index. Nestle Pakistan XD was the best gainer of the day as it soared by Rs250 to Rs6,150 per share, followed by Sapphire Textile, which jumped Rs73.78 to Rs1,136.72/share.

Bhanero Textile suffered the worst losses of the session as it fell by Rs106.38 to Rs1,318.62 per share, followed by Indus Motor Co that eased by Rs15.71 to Rs1,048.08 per share. JS Research said investors welcomed the news of a $3 billion deposit from Saudi Arabia.

“Going forward, we recommend investors to avail any downside as an opportunity to buy in cement, steel, and textile sectors,” the brokerage advised.

K-Electric Ltd was the volume leader with 58.624 million shares. The stock gained 20 paisas to close at Rs3.35/share. It was followed by Pakistan Refinery with 38.745 million shares. It closed higher by 26 paisas to Rs19.72/share.

Some significant volumetric support also came from WorldCall Telecom, Telecard Limited, Cnergyico PK, Unity Foods Ltd, Hascol Petrol, TPL Properties, TRG Pakistan Ltd and Fauji Foods Ltd. Turnover in the future contracts increased to 123.947 million shares from 107.414 million.