Rupee strengthens amid optimistic inflow outlook

Currency gains Rs0.07, buoyed by expected foreign aid, loan rollovers

KARACHI:

The consolidating Pakistani currency improved by Rs0.07 to close at Rs278.34 against the US dollar in the inter-bank market on Friday, maintaining an uptrend for the second consecutive working day on the outlook for an increase in foreign currency inflows.

According to the State Bank of Pakistan’s (SBP) data, the domestic currency had closed at Rs278.41 against the greenback on Thursday. With this, the currency has gained a total of Rs0.16/$ in the past two days, suggesting a net zero change in rupee-dollar parity since the start of the current fiscal year 2024-25 on July 1, 2024. The currency had settled at Friday’s closing level in the previous fiscal year (FY24).

The latest uptick in the currency is recorded on the hope Pakistan would receive a couple of billion dollars in flood relief from global donors and new financing for infrastructure projects like road and dam constructions in the current fiscal year 2024. Besides, concerned authorities anticipated Saudi Arabia and China would roll over $9 billion in loans to Pakistan in the current fiscal year 2024-25, reducing the load of notable foreign debt repayment (including interest payments) worth around $24 billion in the year. The outlook supported the rupee.

Pakistan has also formally proposed Chinese banks restructure $15 billion in debt taken in recent years under the China-Pakistan Economic Corridor (CPEC) to construct power plants in the country. This, coupled with the expected International Monetary Fund (IMF) Executive Board meeting to potentially give its final approval for a $7 billion loan programme to the country, kept the rupee stronger in the market.

The currency market, however, ignored a decrease of around $400 million in foreign exchange reserves. The Exchange Companies Association of Pakistan (ECAP), however, reported the local currency ticked down Rs0.12 on a day-to-day basis, reducing to Rs279.82/$ in the open market.