Rupee struggles despite supportive developments

Drops 0.02% reaching Rs287.26/$, experts call for long-term measures

KARACHI:

Despite some supportive developments over the weekend, the Pakistani currency failed to strengthen in the interbank market, ticking down by 0.02% or Rs0.07 to reach Rs287.26 against the US dollar on Monday.

In the open market, however, the currency partially regained 1%, or Rs3, bringing the exchange rate to Rs294 against the greenback. As a result, the gap between the value of the local currency in the two markets narrowed down to almost Rs7.

The rupee’s lack of improvement in the interbank market comes despite positive news such as China refinancing $1 billion to Pakistan, an improvement in the country’s foreign exchange reserves after six weeks, and conflicting reports about the government’s efforts to revive the International Monetary Fund (IMF) loan programme worth $6.7 billion before its expiration on June 30.

Financial experts are now calling for long-term measures, emphasising the need for serious efforts to resume the IMF programme in order to boost foreign exchange reserves and improve the rupee-dollar exchange rate. They consider the refinancing and rollover of foreign debt as short-term measures.

Research houses have projected the exchange rate to range between Rs290-295/$ by the end of the current fiscal year, which concludes on June 30.

General Secretary of the Exchange Companies Association of Pakistan (ECAP), Zafar Paracha highlighted that the domestic currency has been under pressure in the interbank market since commercial banks were allowed to buy dollars from the market to settle international payments made through credit cards by their clients. Previously, banks would purchase dollars for credit card settlements from the open market.

Paracha noted that the partial recovery in the open market was due to a decline in demand for foreign currency, as around 80% of the business of selling dollars to banks has shifted to the interbank market. He stated that daily demand in the open market has dropped to $2-3 million compared to the previous $20 million.

Controlled demand and supply situations at currency markets have, however, strengthened the grey markets, warned Paracha.

Published in The Express Tribune, June 20^th, 2023.

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