Pakistani currency hit a two-month high of Rs175.52 against the US dollar in the inter-bank market on Thursday after the International Monetary Fund (IMF) resumed its $6 billion loan programme and approved the release of next tranche of $1 billion.
The rupee recovered 0.51% (or Rs0.89) to Rs175.52 compared to Wednesday’s close of Rs176.41, according to the State Bank of Pakistan (SBP).
“Such a large recovery in a single day was last seen about five weeks ago,” Arif Habib Limited (AHL) reported.
Cumulatively, the rupee has recovered 1.53% (or Rs2.72) since hitting an all-time low of Rs178.24 five weeks ago on December 29, 2021.
“The rupee is expected to consolidate around Rs175 against the US dollar in the short run (for about a couple of months),” Ismail Iqbal Securities Head of Research Fahad Rauf said while talking to The Express Tribune.
The currency may not recover beyond Rs175, as global commodity prices, particularly the crude oil prices, remain at higher levels. Pakistan meets a significant proportion of its domestic demand through imports.
“Receipt of the next loan tranche of $1 billion will help build the country’s foreign exchange reserves and improve its balance of payments (capacity to make international payments for imports and repay foreign debt).”
A day ago, the country received another $1 billion by floating a seven-year Sukuk in the international market.
The IMF programme had been on hold for the past eight months after the two sides developed differences over the available options to fix the faltering economy in June 2021.
Read Rupee strengthens against dollar
The resumption of the loan programme has opened new avenues for foreign debt inflows into Pakistan as it restores other global lenders’ trust in the country. The inflows will shore up the foreign exchange reserves and defend the rupee.
The rupee may drop by an annual average of 4-5% to Rs180 by the end of current fiscal year on June 30, 2022, Rauf said.
He pointed out that the rupee had maintained the uptrend after the country’s trade deficit shrank 30% to $3.36 billion in January 2022 compared to December 2021.
The drop in trade deficit was achieved through a notable reduction in the import bill to $5.91 billion in January compared to $7.58 billion in December 2021. Accordingly, the demand for dollar waned, helping the rupee maintain its recovery
Besides, a notable growth in export earnings increased supply of foreign currency.
The foreign exchange reserves have continued to drop for a long time mainly due to the repayment of foreign debt, mostly the short-term debt and foreign commercial loans.
The reserves dropped to a 10-month low of $15.72 billion in the week ended on January 28, 2022, according to the central bank’s data on Thursday.
The reserves hit an all-time high of $20.14 billion five months ago at the end of September 2021.
Earlier, the Pakistani rupee dropped to an all-time low of Rs178.24 against the greenback due to the surge in demand for dollar for import payments.
Imports hit an all-time high of around $8 billion in November after global commodity prices more than doubled amid the Covid-19 pandemic.
Published in The Express Tribune, February 4th, 2022.
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