Rupee hits 2-week high on better dollar supply

The Pakistani currency hit a two-week high at Rs278.40 against the US dollar in the inter-bank market, maintaining an uptrend for the second consecutive working day on Wednesday, due to a likely improvement in the supply of foreign currency compared to demand.

According to data from the State Bank of Pakistan (SBP), the domestic currency improved by Rs0.10 on a day-to-day basis, up from Tuesday’s close at Rs278.50/$.

The currency has largely remained stable in the range of Rs278-278.62/$ over the past couple of months.

In net terms, it has appreciated by 10.30%, or Rs28.70, in the past nine-and-a-half months to date, compared to a record low closing of Rs307.10/$ in the first week of September 2023.

The Exchange Companies Association of Pakistan (ECAP) reported that the local currency remained unchanged at Rs280.27 for the second consecutive day in the open market.

The currency has continued to remain stable in both markets, coinciding with the World Bank’s approval of over $500 million for Pakistan last week.

Additionally, the government’s collaboration with the International Monetary Fund (IMF) on the formation of the federal budget for the next fiscal year 2024-25 suggests the country is making efforts to secure the next IMF programme, likely in July or August 2024.

The IMF’s Extended Fund Facility (EFF) would increase inflows of foreign currency into the country and help unlock funds from other multilateral and bilateral creditors. This development would help increase the country’s foreign exchange reserves and strengthen the rupee.

Many experts, however, anticipate the rupee will resume devaluation from July onward due to a likely increase in imports. The government has projected the rupee-dollar parity at Rs295/$ for FY25.

Furthermore, the supply of foreign currency may also witness a seasonal drop in the outgoing month of June post-Eidul Azha, as inflows of workers’ remittances sent by overseas Pakistanis may dip following the record-high receipt of $3.24 billion in May 2024 related to the Eid festival.