Rupee recovers to 148.21 in inter-bank

People converting dollars into rupees due to attractive rate of return on investment

Salman Siddiqui May 31, 2019
People are converting dollars into rupees due to attractive rate of return on investment. PHOTO: REUTERS

KARACHI: Pakistani currency dramatically recovered a significant Rs1.42 to Rs148.21 to the US dollar in the inter-bank market on Thursday following the recent massive hike in key interest rate made the rupee attractive.

“Institutions and people are converting dollars into rupees after the rate of return on investment in rupee became attractive as the central bank aggressively increased the key interest rate by 150 basis points to a 91-month (eight-year) high at 12.25% on May 20,” a leading banker, who spoke on condition of  anonymity, told The Express Tribune.

“Banks have made record investment of Rs3.1 trillion in three-month treasury-bills in the first auction of government securities after the rate hike,” he recalled. “The cut-off yield (rate of profit) on short-duration T-bills also increased 150 basis points to 12.75% in the auction.”

Rupee recovers in inter-bank

Before the latest rate hike, banks’ participation in the three-four T-bills auctions had remained dull, the analyst pointed out the other day. The banks have also aggressively invested in the long-term (three and 10 years) Pakistan Investment Bond (PIB) a couple of days ago, the banker maintained.

The rupee has maintained uptrend for the past six working days (May 23-30). It has regained 2.5% or Rs3.75 in the last one week to date.

Earlier, the rupee had lost 7.5% to an all-time low closing at Rs151.95 to the greenback in the latest round of rupee deprecation during May 16-22.

To recall, Pakistan aggressively increased the key interest rate and let the rupee depreciate against the dollar under apparent tough conditions set by the International Monetary Fund (IMF) to award a 39-month long loan worth $6 billion to Pakistan.

IMF set the conditions to fix structural issues in the faltering economy.

The banker added rupee has also strengthened following overseas Pakistani workers sending increased remittances, which usually peak during second half of Ramazan every year.

Head of remittances department at a state-owned bank said workers remittances should be worth around $2 billion during the month of May compared to $1.7 billion received in previous month of April. Thirdly, the drop in international petroleum oil prices has also eased import payment pressure on Pakistan as the country remained net oil imports and almost one-fourth of the total import bills are paid for oil imports. Exchange Companies Association of Pakistan (ECAP) Secretary General Zafar Paracha said the rupee has recovered after Saudi Arabia activated credit line worth $3.2 billion from July to provide petroleum oil to Islamabad on deferred payment during the next three years.

“Remittances increase by 10-15% in second half of Ramazan,” he estimated. The supply of dollars is increasing in the system as exporters have asked its buyers in overseas markets to make the due payments. Earlier, they had withheld export proceeds with the international buyers in wait for the then expected rupee depreciation. Laws in the place allow exporters to receive payment in 90 days.

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Besides, importers have also come out of panic buying of dollars and adopted a wait-and-see strategy, he said.

“Most of the visitors to exchange companies’ counters are foreign currency sellers and hardly any buyer,” he said. “We have been selling dollars in inter-bank market. We have surrendered around $70-80 million in inter-bank in the past one week and hoped the amount would increase to $100 million before Eid (expected on June 5),” he said.

“If the situation remains the same going forward, the rupee is expected to strengthen at Rs145-146 to the greenback in both the inter-bank and open market before Eid festival,” he said.

Published in The Express Tribune, May 31st, 2019.

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