Rupee hits 11-week high against US dollar

In a significant rebound, the Pakistani currency achieved an 11-week high, closing slightly over Rs280 against the US dollar in the interbank market. This surge is attributed to the rollover of $2 billion deposits by the United Arab Emirates (UAE) at the State Bank of Pakistan (SBP) and the disbursement of a new loan tranche of $706 million from the International Monetary Fund (IMF) on Wednesday.

According to the latest data from the SBP, the domestic currency appreciated by 0.05%, or Rs0.15, closing at Rs280.10 against the US dollar. Analysts anticipate that the currency will continue its upward trend, with the full impact of the UAE rollover and the IMF tranche expected to manifest in the coming days.

This recent uptick marks a cumulative bounce-back of 9.64%, or Rs27, over the past four months, compared to the all-time low recorded at Rs307.10/$ in the first week of September 2023. The positive momentum is further supported by the country’s current account balance, which reached a five-month high surplus at $397 million in December.

Additionally, foreign direct investment (FDI) showed notable improvement in December, suggesting that inflows may continue to increase alongside the growing optimism for economic activities in the country.

The Exchange Companies Association of Pakistan (ECAP) reported a 0.07% improvement, or Rs0.19, on a day-to-day basis, closing the open market rate at Rs280.73/$.

Read Rupee halts two-week winning streak

Market discussions indicate that these developments directly support the rupee against the US dollar and are likely to encourage multilateral and bilateral creditors, as well as global investors, to enhance financing activities in Pakistan.

Pakistan received the second tranche of the IMF loan, totalling $705.6 million, following the approval by the executive board on January 12. The successful completion of the first review of the domestic economy under the ongoing $3 billion loan programme two months ago in November 2023 further solidified the country’s economic position.

Real Effective Exchange Rate indicates fair value

The country’s real effective exchange rate (REER), which measures the value of the Pakistani currency against the basket of currencies of its trading partners, appreciated to 98.9 in December 2023, compared to 98.3 in the previous month of November 2023.

This reading suggests that imports have become slightly cheaper, while export competitiveness edged down slightly at the global level. However, the REER remains largely fair at present, as values within the range of 95-105 are considered fair. The SBP has maintained it near 95-96 during the years 2020-22.

Published in The Express Tribune, January 18^th, 2024.

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