With loan rollover, rupee appreciates further
Pakistani currency on Wednesday appreciated to a new four-month high at Rs279.12 to a dollar in the inter-bank market, drawing support from reports saying China had agreed to roll over $2 billion of deposits at the State Bank of Pakistan (SBP).
The rollover helped maintain Pakistan’s foreign exchange reserves, held by the central bank, at the current level of slightly above $8 billion, which kept the rupee strong against foreign currencies.
According to SBP data, the domestic currency regained 0.05%, or Rs0.16, against the greenback compared to Tuesday’s negative close at Rs279.28/$.
With the latest gains, the currency has appreciated a net 10%, or almost Rs28, in the past over five and a half months compared to the all-time low close at Rs307.10/$ recorded in the first week of September 2023.
In addition to the Chinese loan rollover, the rupee also got support from a surge in supply of foreign currency amid increased remittances sent home by overseas Pakistanis to their families and relatives ahead of the arrival of Ramazan, and improved export earnings in the outgoing month of February.
Market talk suggests that exporters were selling US dollars at good margins on forward counters in the currency market keeping in view the outlook that the rupee may continue to gain further ground against the greenback.
In the open market, the rupee remained unchanged at Rs282.04/$ for the second consecutive working day, according to the Exchange Companies Association of Pakistan (ECAP).
Read Rupee comes under some pressure
Earlier, the retail market saw the local currency cumulatively shed Rs1.03 over two weeks in the wake of uptick in demand for US dollars, mainly from pilgrims going to perform Umrah.
The appreciation of the rupee in the inter-bank market and no change in its value in retail trade widened the difference between the two markets to Rs2.92 (or 1.05%).
The International Monetary Fund (IMF), which has provided a $3 billion standby facility to Pakistan, has recommended the maximum difference between currency values in the two markets at 1.25% (or around Rs4 at current levels).
In an important development, Moody’s Investors Service on Tuesday left its credit rating for Pakistan unchanged at “Caa3”, indicating a high credit risk.
It raised doubts about the ability of the new government to quickly negotiate a new IMF loan programme soon after the ongoing one expires in April 2024. Moody’s maintained a “stable outlook” on Pakistan’s credit rating.
Published in The Express Tribune, February 29th, 2024.
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