Rupee at 4-month high as inflows rise

Pakistani currency on Monday hit a four-month high at Rs279.20 against the US dollar in the inter-bank market as it resumed the uptrend on the back of increase in supply of foreign currency compared to its demand for imports.

Market talk suggests that dollar inflows surged on account of rise in remittances sent home by overseas Pakistanis and higher export earnings. Exporters scrambled to sell the greenback on forward counters in the currency market, believing that the rupee may continue to strengthen in the coming days.

Besides, the rupee appreciated in the backdrop of reports saying that the government would try to secure a larger International Monetary Fund (IMF) loan programme of $7.5-8 billion when the current $3 billion standby arrangement ended in March-April 2024.

Earlier, the government said it would approach the global lender for seeking a loan package of $6 billion. Higher inflows of foreign currency in future will further support the rupee.

According to State Bank of Pakistan’s (SBP) data, the rupee gained 0.06%, or Rs0.16, on a day-on-day basis and closed at Rs279.20/$.

The currency has regained 10% of its value, or Rs27.90, in the past five and a half months since closing at the all-time low of Rs307.10/$ in the first week of September 2023.

Pakistani rupee, however, maintained its downtrend in the open market owing to the uptick in demand for the greenback. Exchange Companies Association of Pakistan reported that the local currency decreased Rs0.05 at Rs282.28/$ in the retail market.

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Consequently, the disparity between rupee values in the two markets further widened to Rs3.08 (or 1.10%), getting closer to the ceiling of 1.25% (around Rs4 at current levels) recommended by the IMF. The widening gap may become a cause for concern. Earlier, it surged to Rs30-40, resulting in high volatility in currency markets.

Treasury firm Tresmark said on Saturday that the rupee had remained in the range of 279-280 to a dollar in the past 30 days.

“It is no surprise that senior officials have already started approaching the IMF for a new, larger package that will provide economic stability,” it said.

It is evident that dollar liquidity in the market is ample with banks’ Nostros sufficiently funded.

“Within the next two weeks, we will see an increase in remittances (ahead of Ramazan and Eidul Fitr). This will further improve dollar liquidity levels. However, demand for dollars for Umrah too will go up (in open market).”

Due to such factors, the Pakistani rupee vs the US dollar appears to be range bound till the end of March and perhaps even beyond, it added.

Published in The Express Tribune, February 27^th, 2024.

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