Pakistani currency continued its impressive rally for the sixteenth consecutive working day, reaching a new seven-week high against the US dollar in the inter-bank market, thanks to increased inflows via the Roshan Digital Account (RDA).
According to data from the State Bank of Pakistan (SBP), the rupee strengthened by 0.36%, equivalent to Rs1.05, settling at Rs288.75 against the US dollar on Wednesday.
As a result, the currency now stands merely Rs0.26 away from its value before the caretaker government period at Rs288.49/$.
The currency had previously suffered a 6% depreciation, amounting to Rs18.60, touching a record low of Rs307.10/$ in the initial weeks of the interim government, a situation attributed to the previous government’s handling of economic matters.
To date, the currency has recovered an impressive 6.35%, totalling Rs18.35 over the past 16 working days, indicating that it was undervalued and had room for further strengthening.
Market experts suggest that the currency could appreciate to levels between Rs260 and Rs280 against the US dollar in the ongoing cycle, which would help mitigate imported inflation.
In the open market, the currency saw an additional 0.34% increase, equivalent to Rs1, settling at Rs290/$, according to the Exchange Companies Association of Pakistan (ECAP).
The gap between the rupee’s values in the inter-bank and open markets has narrowed to 4.33%, or Rs1.25, well within the limits recommended by the International Monetary Fund (IMF), which suggests a maximum spread of 1.25%, or almost Rs4.
Market insiders indicate that the recent support for the rupee has primarily come from increased inflows of home remittances sent by overseas Pakistanis through the Roshan Digital Account (RDA) in August.
Expectations are high that these inflows will continue to rise, especially after the government increased the rate of return on the Naya Pakistan Certificate (NPC). This certificate is specifically designed for overseas Pakistanis who invest in it through the RDA, further boosting the RDA's appeal as a vehicle for foreign investment.
Published in The Express Tribune, September 28th, 2023.
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