Pakistani currency continued to strengthen for the ninth consecutive working day on Monday, on the back of strong support from administrative measures like a crackdown on currency smugglers and hoarders, which increased supply of foreign currencies in the banking system.
According to the State Bank of Pakistan’s (SBP) data, the currency hit a new one-month high at Rs295.95 against the US dollar, with gains of 0.30%, or Rs0.90, on a day-on-day basis.
In the past nine days, the rupee cumulatively appreciated by 3.76%, or Rs11.15, recovering from the all-time low of Rs307.10/$ touched earlier this month.
The recent rupee movement suggests it may stabilise in the range of Rs290-295/$ in the short run.
Earlier, it lost 6%, or Rs18.60, to the record low at Rs307.10/$ in the first three weeks of the current caretaker government, giving an impression that the government was letting the currency depreciate on the International Monetary Fund’s (IMF) recommendation.
Topline Securities anticipated that the rupee would resume its downtrend in the medium to long run, adding that it may reach Rs320-340/$ in inter-bank trade by the end of current fiscal year on June 30, 2024.
Based on a recent poll of key market participants, conducted by Topline Research, 38% anticipated that rupee-dollar parity would be in the range of Rs320-340 by June 2024.
Around 25% of poll participants expected the currency to stand between Rs340 and Rs360/$ while 21% saw it in the range of Rs300-320. However, 12% expected it to stay below Rs300 while 5% projected it would go beyond Rs360.
In the open market, the currency remained unchanged at Rs297/$ on Monday, according to the Exchange Companies Association of Pakistan (ECAP).
Earlier, it registered cumulative gains of 10.43%, or Rs31, in the past 10 working days.
REER depreciates
Pakistan’s central bank reported that the real effective exchange rate (REER), the value of rupee against a basket of currencies of trading partners, depreciated to 90.1 on the REER index in August compared to 91.59 in July.
Topline Securities said that REER suggested that the “rupee is undervalued”, indicating that there was more room for recovery against the basket of currencies. Last 10-year average of REER stood at Rs106.7 on the index, it added.
The central bank has mostly kept it in the range of 95-96 in recent years under the IMF’s loan programme.
Topline pointed out that the caretaker government, along with the State Bank of Pakistan (SBP), took several measures to cool down demand in the open market.
These included tightened security along borders to prevent currency smuggling, closure of exchange companies involved in illicit activities, SBP directives to category 'B’ exchange firms and franchises to either merge with full-fledged entities or sell their businesses to stronger counterparts.
Published in The Express Tribune, September 19th, 2023.
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