Rupee best performing currency
Surplus supply of US dollar encouraged the central bank to allow currency dealers to export the foreign currency and import it within three working days. photo: file
Pakistani rupee got the title of best performing currency in the world in August, as it notched up the largest gain of 11% against the US dollar among all currencies.
The rupee made a fresh recovery of 0.71% (or Rs1.51) to a one-month high at Rs213.98 against the greenback in the inter-bank market on Monday, according to the State Bank of Pakistan (SBP) data.
With this, it has cumulatively regained almost 11% (or Rs26) in the past 10 consecutive working days since hitting an all-time low close at Rs239.94 on July 28, 2022.
“After months of economic and political uncertainties, it is happy to see Pakistani rupee and the stock market being top performers so far in August, beating all other countries based on Bloomberg data,” Topline Securities CEO Muhammed Sohail reported on his official Twitter handle.
“Pakistani rupee is up 11% while the KSE-100 index is up 22% in US dollar (value at the Pakistan Stock Exchange).”
The latest day-to-day recovery of the rupee came following rollover of a soft loan of $3 billion by Saudi Arabia. Besides, the IMF initiated talks to make additional lending of $2.8 billion to Islamabad from the kingdom’s quota of Special Drawing Rights (SDRs) – the IMF currency.
The loan from the kingdom’s quota would be separate from the revival of $7 billion IMF loan programme for Pakistan. The IMF executive board is scheduled to approve the release of next tranche of $1.2 billion on August 29, 2022.
The downward trend in international oil prices also supported the rupee, as Pakistan heavily relied on imported energy.
Earlier, the currency slumped 13.75% (Rs31.31) in 10 successive working days to a historic low at Rs239.94 against the US dollar on July 28, 2022. It nosedived 30% to around Rs205 in the previous fiscal year ended June 30, 2022.
US dollar export
The smart rally of the rupee came in the wake of rising supply of foreign currency compared to its demand in the country. Major sources of supplies are export earnings and workers’ remittances while major demand comes from importers.
The surplus supply of the US dollar encouraged the central bank to allow currency dealers to export the foreign currency and import the same within three working days into their foreign currency accounts maintained at local banks and sell them in the inter-bank market, according to a central bank notification sent to the dealers.
The central bank has allowed such exercise only for a limited period of 46-days (till September 30) on the condition the currency dealers would make sure there left sufficient supplies of the greenback to meet individual buyers’ demand at their counters in the open market.
“This ($ export and import) would further improve the supply of the US dollars in the inter-bank market and help rupee to maintain uptrend, going forward,” Exchange Companies Association of Pakistan (ECAP) General Secretary Zafar Paracha said while talking to The Express Tribune.
“Dollars notes in physical form cannot be surrendered in the inter-bank market.”
The export of physical dollars and their import in bank accounts is estimated to improve supplies by around $5 million a week, Paracha said.
Till today, they used to surrender an average of $15 million to $20 million a week through exporting other foreign currencies (except dollars) and importing US dollars of equivalent value, mostly to Dubai.
Paracha said there were mostly sellers of foreign currencies at their outlets and almost no buyers these days. Accordingly, their working capital (in rupee-denomination) was blocked in US dollar form.
Moreover, the situation made the rupee cheaper in the open market compared to the inter-bank market. The dollar is being sold for Rs210 and bought for Rs208 at the open market compared to Rs214 and Rs213, respectively, at the inter-bank market.
Usually, the price of the dollar in rupee in the open market used to stand slightly higher than the one in the inter-bank market.
SBP circular reads “It has been decided to allow the exchange companies to export US dollar on a consignment basis through cargo/security companies….The proceeds of such export must reach in US dollar account of the exchange companies maintained with banks in Pakistan, within three days of such export.
“Exchange companies shall surrender 100% of foreign exchange received on account of export of US dollar, in the interbank market on the same day. This facility will be available until September 30, 2022,” SBP said.
Published in The Express Tribune, August 16th, 2022.
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