Pakistani currency maintained its uptrend for the fifth successive working day on Tuesday, appreciating to a new three-month high above Rs279.50 against the US dollar in the inter-bank market in the wake of improved inflows of the foreign currency compared to its demand.
According to State Bank of Pakistan’s (SBP) data, the rupee improved 0.02%, or Rs0.06, and closed at Rs279.79 against the greenback.
The currency has appreciated 9.76%, or Rs27.31, in the past four and a half months compared to the all-time low of Rs307.10/$ hit in the first week of September 2023.
Exchange Companies Association of Pakistan (ECAP) reported that the rupee ticked down Rs0.02 to Rs281.09/$ in the open market.
The currency has continued to rise in the main inter-bank market on the back of improved supply of the greenback as exporters resumed dollar sales, which were earlier held back following the eruption of tensions between Pakistan and Iran over airspace violations.
The return of normality in diplomatic relationship encouraged traders to sell dollars with the currency market outlook remaining positive to stable.
Earlier, the border tensions had sparked the probability of return of illegal currency dealers. However, the fast-paced de-escalation of the situation did not let Hawala-Hundi operators to re-establish the black market.
Authorities had launched a crackdown on the illicit currency dealers a couple of months ago to stop greenback smuggling to neighbouring countries including Afghanistan and Iran. The stringent action helped Pakistani rupee to regain significant ground since touching the historic low in the first week of September.
Market talk suggests that Pakistan has signed an agreement with Saudi Arabia and the United Arab Emirates (UAE) for increasing the flow of remittances from Pakistanis living in the two countries. The two Middle Eastern countries are the largest sources of remittances for Pakistan.
The rupee has also got critical support from the improvement in Pakistan’s foreign exchange reserves.
Late last week, caretaker Finance Minister Shamshad Akhtar revealed that the central bank’s foreign currency reserves hit a high of $9.1 billion compared to mere $4 billion at the start of her term.
The spike in the reserves came following receipt of second IMF loan tranche of $700 million recently.
Such high reserves had last been reached in July 2022, indicating they have now spiked to an 18-month high. The IMF wanted Pakistan to achieve that level by June 2024, but the country did it five months ahead.
The finance minister said the SBP was cognisant that its policy rate should be brought down from the high of 22% to prop up economic activities. “The rate cut, however, largely depends on the deceleration in inflation that has spiked to a record high in the recent past,” she pointed out.
Published in The Express Tribune, January 24th, 2024.
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