Rupee recovers sharply in open-market trade against USD

Pakistani currency made a remarkable recovery of almost 5.5%, or Rs16, in a single day to a one-week high at Rs295 against the US dollar in the open market at around midday on Thursday.

The currency had closed at Rs311 against the greenback on Wednesday, according to the Exchange Companies Association of Pakistan (ECAP).

Accordingly, the gap in the rupee-dollar exchange rate between interbank and open markets narrowed down to about Rs10 compared to around Rs27 a day ago.

In the interbank market, the currency has continued to stabilise around Rs285/$ for the past couple of weeks.

The widening spread in the value of the rupee between the two markets had led International Monetary Fund (IMF) to recommend the government "focus on restoration of proper foreign exchange market functioning."

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The significant correction in the open market became possible after the central bank allowed commercial banks to purchase US dollars from the interbank market to settle international payments made through credit cards by their clients.

Earlier, they were buying an average of $10 million a day from the interbank market to settle credit card payments in overseas markets.

The demand from commercial banks had nosedived the currency to a record low at Rs312/$ in the open market on Tuesday.

ECAP General Secretary Zafar Parachs had predicted a massive correction in rupee-dollar parity in the market after the central bank allowed banks to purchase dollars from the interbank market on Wednesday.

He said the currency would recover by around Rs20-25 over the next couple of days, including a recovery of Rs15-20 on Thursday (today).

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Earlier, financial experts anticipated another round of rupee depreciation of 5-10% to Rs300-310/$ in the interbank market to narrow down the spread between interbank and open markets ahead of the revival of the IMF loan programme before it officially expires on June 30, 2023.

The currency has continued to remain under pressure against the US dollar amid the depletion of foreign exchange reserves to a critically low level of $4.2 billion.

On the other hand, Pakistan is to repay foreign debt worth $3.7 billion in the ongoingly month of June.

The low reserves and the scheduled debt repayments have increased the risk of the country's default on international payments after June 2023 if the IMF programme remains stalled.