Rupee strengthens 1.4% in inter-bank market as Saudi aid lends support

Forex association chief says outlook for the currency remains positive

Salman Siddiqui October 24, 2018
Forex association chief says outlook for the currency remains positive. PHOTO:REUTERS/FIle

KARACHI: The Pakistani currency strengthened 1.4% to Rs132.03 to the US dollar in the inter-bank market on Wednesday after Saudi Arabia agreed on a $6-billion assistance package for Pakistan.

The rupee had closed at Rs133.91 to the greenback on Tuesday.

The announcement of the financial assistance came at a time when Pakistan was in dire need of foreign currency to avert default on import payments and debt repayments.

Earlier, Finance Minister Asad Umar said the country needed to immediately arrange $2 billion to smoothly sail through the present tough time as the foreign currency reserves had dropped to a critically low level of $8.08 billion.

The financial package injected a new lease of life into the national economy and provided great support for the rupee.

"The rupee's recovery came following the announcement of a $6-billion aid package for Pakistan by Saudi Arabia," remarked Exchange Companies Association of Pakistan General Secretary Zafar Paracha.

Impact of rupee’s fall will be felt after a year: SBP official

On Tuesday, Saudi Arabia pledged to provide $3 billion in cash to shore up Pakistan's foreign currency reserves, which will go above $11 billion compared to $8.08 billion at present.

Besides, Riyadh agreed on a credit line of $3 billion for oil supply to Pakistan for three years.

These announcements were made after Prime Minister Imran Khan attended the Future Investment Initiative (FII) conference in Riyadh.

In addition to the immediate assistance package, Saudi Arabia has also agreed to establish a multibillion-dollar oil refinery in Pakistan over the next five years.

The rupee in the unregulated open market also regained 1.56%, or Rs2.1, and closed at Rs131.8 against the dollar compared to Rs133.9 a day earlier.

Pakistan Forex Association President Malik Bostan commented that it was the first big achievement of the government on the external front during its first 100 days in office. "The (Saudi Arabian) package has removed uncertainty on the balance of payments front," he said.

Earlier, the record high current account deficit of $19 billion in FY18 ate up a large quantity of the country's foreign currency reserves and triggered a balance of payments crisis.

In historic drop, rupee weakens 7.54% against US dollar

The State Bank of Pakistan (SBP) has let the rupee depreciate by a massive 25% to Rs132.03 to the US dollar in the past 10 months in a bid to tame dollar demand in a faltering economy.

Earlier, the rupee touched a record high of Rs138 to the US dollar in intra-day trading in the second week of current month. Earlier, it was at Rs105.5 in mid-December 2017.

The finance minister said last week the government would have come under pressure to let the rupee depreciate by 100% to 200% if it had not made structural changes on monetary and fiscal fronts including the benchmark interest rate hike, levy of regulatory duty on imports and incentives for the export sector.

Analysts anticipate a similar aid package from China as well as Prime Minister Imran Khan is scheduled to visit Beijing early next month.

Despite such positive developments, Pakistan would also negotiate a bailout with the International Monetary Fund (IMF), but for a reduced package compared to the $15 billion previously expected.

"Aid from friendly countries will help Pakistan acquire IMF loan at better terms and avoid stringent conditions," Bostan said. Moreover, "the outlook for Pakistani rupee remains positive," he added.


Hashim | 3 years ago | Reply @sarim shaikh: You can't have stable exchange rates when you are importing far more than you are exporting and not getting enough investment or loans to cover the deficit. The rupee needs to depreciate gradually or else we'll get the shock devaluations of recent months. Depreciation cannot be avoided entirely only delayed.
sarim shaikh | 3 years ago | Reply @Hashim: Exactly. Lets do away with the flip flops. Keep forex stable to avoid uncertainty and tremors faced by economy. We should target $20 billion reserves within next six months. By that time we will be able to present next budget to keep economy on track for its first resuscitation. Ban import of used cars and similar luxuries - unless importers pay money by first bringing forex into the country and then paying the sellers through Pk banking channels. Give incentives to telcos so that they may keep their profits in Pakistani banks and invest them in govt bonds for the next year. Make it very expensive for people to own higher than 1300cc vehicles. None of the poor shall die if they are unable to drive a Lamborghini or wear their Louis Vuitton during the next few months of course correction.
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