Rupee rises amid political stability

The Pakistani currency resumed its uptrend after a day of nominal losses, partially regaining to Rs279.50 against the US dollar in the interbank market on Wednesday amid the beginning of the end of the political crisis over the formation of the government in the centre.

According to the State Bank of Pakistan’s (SBP) data, the domestic currency regained 0.02% or Rs0.07 against the greenback on a day-to-day basis.

In total, the local currency has increased by 9.87% or Rs27.60 over the past five months to date compared to its record low closing at Rs307.10/$ in the first week of September 2023.

Market talks suggest that the supply of foreign currencies has remained higher than demand in the interbank market. A report suggests an uptrend in export earnings in the first 15 days of the ongoing month of February. Moreover, overseas Pakistanis are believed to be sending higher workers’ remittances to their family members and friends these days ahead of the beginning of Ramazan in the second week of March 2024.

However, the currency in the open market extended its losses for the ninth consecutive working day, falling by 0.04% or Rs0.12 on a day-to-day basis to close at Rs282.44/$.

Read Rupee falls to 3-week low against dollar

The currency has cumulatively dropped by Rs1.43 in the open market in the past nine days.

Dealers at the open market said the drop is recorded following a demand for foreign currencies up by 10% for purchase by Hajj and Umrah pilgrims these days compared to the pre-election days that were held on February 8 in the country.

Accordingly, the disparity in the value of the rupee between the two markets further widened to Rs2.94 (or 1.05%) at present, gradually approaching the IMF recommended maximum limit of 1.25% (around Rs4 at current levels). If the spread continues to widen, then either the currency has to appreciate in the open market or depreciate in the interbank market to reduce the widening.

Earlier, the disparity had spiked to Rs30-40 by the first week of September 2023, resulting in high volatility in the local currency in both markets.

Published in The Express Tribune, February 22^nd, 2024.

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