Rupee gradually climbs to fresh 3-month high

KARACHI:

The Pakistani currency maintained its bullish trend for a fifth consecutive business day on Tuesday, appreciating to a fresh three-month high above Rs 279.50 against the US dollar in the interbank market following improved foreign currency inflows compared to its demand.

The rupee improved 0.02%, or Rs0.06, to close at Rs279.79 against the dollar, according to State Bank of Pakistan (SBP) data.

The currency has appreciated 9.76%, or Rs 27.31, in the last four-and-a-half months compared to its all-time low of Rs 307.10/$ in the first week of September 2023.

The Exchange Association of Pakistan (ECAP) said the rupee fell by Rs 0.02 to Rs 281.09/$ in the open market.

The currency continued to rise in the main interbank market on improved dollar supply as exporters resumed dollar sales, which had earlier been held back after tensions flared between Pakistan and Iran over airspace violations.

The return to normalcy in diplomatic relations encouraged traders to sell dollars with the outlook for the foreign exchange market remaining positive to stable.

Earlier, border tensions had sparked the possibility of a return of illegal currency traders. However, the quick de-escalation of the situation did not allow the Hawala-Hundi operators to restore the black market.

Authorities had launched a crackdown on illegal currency traders a few months ago to stop the smuggling of dollars to neighboring countries, including Afghanistan and Iran. The tight action has helped the Pakistani rupee regain significant ground since hitting an all-time low in the first week of September.

Market discussions indicate that Pakistan has signed an agreement with Saudi Arabia and the United Arab Emirates (UAE) to increase the flow of remittances from Pakistanis living in the two countries. The two Middle Eastern countries are the biggest sources of remittances for Pakistan.

The rupee also has critical support from Pakistan’s improving foreign exchange reserves.

Late last week, caretaker finance minister Shamshad Akhtar revealed that the central bank’s foreign exchange reserves had reached a record high of $9.1 billion compared to just $4 billion at the start of her tenure.

The rise in reserves came after receiving the second tranche of a $700 million IMF loan recently.

Such highs were last reached in July 2022, indicating they have now surged to an 18-month high. The IMF wanted Pakistan to achieve this level by June 2024, but the country did so five months early.

The finance minister said the SBP was aware that its policy rate would have to come down from a high of 22% to support economic activities. “The rate cut, however, is largely dependent on a slowdown in inflation which has soared to a record high in the recent past,” he pointed out.

Published in The Express Tribune, January 24^u2024.

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