Rupee makes more headway vs dollar on Dar strength

KARACHI: Rupee extended gains on Thursday amid persistent bullish sentiments, further aided by new Finance Minister Ishaq Dar’s call on currency speculators to stop their activities.

The rupee closed at 229.63 per dollar, compared with Wednesday’s close of 232.12 in the interbank market. It gained 2.49 or 1.08 percent against the greenback on a day-on-day basis.

The local currency rose by 3 rupees versus the dollar in the open market. It ended at 230 to the dollar, compared with 233 in the previous session.

Market participants said that

following Dar’s statement as Pakistan’s new finance minister, where he said

that no one would be permitted to manipulate the foreign exchange market, currency speculation appeared to have decreased.

The rupee is now gaining ground as a result of this.

“Sentiments are driving the rupee’s recent surge. In anticipation of a future increase in the value of the rupee, exporters are selling dollars in the market. Additionally, the IMF’s loan programme concessions and aid pledges from bilateral and multilateral sources in the wake of the floods and food crises have strengthened investors’ perceptions of the rupee,” he added.

But the aid inflows have yet now materialised, he continued.

Analysts said the rupee was expected to regain some lost ground. However, with the return of Dar, the pace of appreciation has accelerated.

The currency rose by 10.08 rupees

or 4.32 percent during the last five sessions.

The lower current account deficit and falling global commodity prices also support the rupee’s gain. The current account deficit narrowed 54 percent to $703 million in August from $1.5 billion a year ago.

The deficit is likely to remain in check on account of declining international commodity prices and administrative measures taken by the government. Inflation too has most likely peaked and was expected to come down over the coming months.

Prime Minister Shahbaz Sharif and former finance minister Miftah Ismail have succeeded in negotiating three concessions from the IMF in their recent meeting with the Fund.

Those three concessions include the upcoming $1.1 billion tranche (likely to be front-loaded), a three-month freeze on taxes on petroleum, and fuel cost adjustments on electricity tariffs, as well as relaxation on current account and

fiscal deficit targets to import food supplies and manage flood-related expenditures.

Dar said the strengthening of rupee value would be his top priority, followed by lowering the inflation and interest rates to revive the economy. However, analysts believe that the finance minister would find it difficult to intervene in the currency market to maintain the rupee's stability given the country's low foreign reserves and market-based exchange rate regime.

The IMF has been much stricter in terms of policy implementation. Pakistan currently has a free exchange rate environment regime.

It has record-low foreign exchange reserves and no room to use them to control exchange rates.

However, administrative curbs and stronger checks on manipulation and the smuggling of dollars out of Pakistan still offer room to control the exchange rate.