Rupee halts winning streak on dollar demand
Rupee has declined. photo: file
In a shift that aligned with market expectations, the Pakistani currency experienced a slight dip to slightly above Rs285 against the US dollar in the interbank market, marking the end of its five-day winning streak. The dip comes amidst increased pressure for foreign currency demand, particularly for significant import payments.
According to the State Bank of Pakistan’s (SBP) data, the domestic currency declined by 0.05%, or Rs0.14, settling at Rs285.27 against the greenback.
Market reports suggest that traders actively purchased dollars, likely to fulfil substantial import obligations. The currency had shown cumulative improvement of 1%, or Rs3, over the previous five working days. This surge followed the International Monetary Fund’s (IMF) staff level approval for the next loan tranche of $700 million for Pakistan after the successful completion of its first economic review under the ongoing $3 billion loan programme.
Contrary to the interbank market, the Exchange Companies Association of Pakistan (ECAP) reported that the currency continued its gains by Rs0.50, closing at Rs286 against the US dollar in the open market.
Read: Rupee near three-week high vs greenback
Market discussions indicate that high expected inflation, estimated around 27% for November due to a gas price hike, coupled with low foreign currency inflows from global creditors and international investors, is hindering the currency’s ability to sustain its upward trend.
In its weekly update, the central bank revealed that the country’s foreign exchange reserves (held by SBP) decreased by $214 million due to debt payments, reaching less than two months of import cover at $7.2 billion.
Experts predict that the currency has reverted to a downward trend and will continue to do so at a slow pace until inflation readings decelerate into single digits or significant foreign currency inflows are observed.
Despite this, the market seems to have overlooked a crucial piece of information – the IMF’s projection that the average rupee-dollar parity would remain below Rs300/$ by the end of the current fiscal year on June 30, 2024, compared to its earlier assumption of Rs305.20/$.
Published in The Express Tribune, November 24th, 2023.
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