The overweight Pakistani currency on Tuesday came under nominal selling pressure as it inched down to Rs279.28 against the US dollar in the inter-bank market apparently due to an uptick in demand for the greenback compared to its supply.
The currency had hit a four-month high a day ago, closing at Rs279.20 against the dollar. According to State Bank of Pakistan’s (SBP) data, the rupee decreased 0.02%, or Rs0.08, on a day-on-day basis.
The currency saw the nominal drop after having gained a net 10%, or Rs27.90, in the past five and a half months compared to the record low close at Rs307.10/$ in the first week of September 2023.
According to the central bank’s latest monthly update, Pakistan’s real effective exchange rate (REER) – the value of rupee against a basket of currencies of foreign trading partners – appreciated to 101.70 in January 2024 from 98.3 in December 2023.
It indicated that the Pakistani rupee had become slightly overvalued at current levels and there was a room for some depreciation.
On the other hand, the rupee regained 0.08%, or Rs0.24, and closed at Rs282.04/$ in the open market, according to the Exchange Companies Association of Pakistan (ECAP). The appreciation in retail trade and depreciation in inter-bank dealings slightly narrowed the disparity between currency values in the two markets to Rs2.76, or 0.99%, putting a brake on the widening of the difference in recent days.
Read Rupee at 4-month high as inflows rise
The gap had widened to 1.10% (Rs3.08) until Monday, getting closer to the maximum limit of 1.25% (around Rs4) recommended by the International Monetary Fund (IMF).Market talk suggests that Pakistan’s political uncertainty has eased, but it still remains elevated, which makes the next IMF loan programme uncertain. If the country fails to get the loan package on time in March-April 2024, it will leave a negative impact on the rupee. 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.
Published in The Express Tribune, February 28th, 2024.
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