Rupee strengthens to over six-month high

The Pakistani rupee strengthened by Rs0.05, closing at a six-month high of Rs277.64 against the US dollar in the interbank market, maintaining a winning streak for a second consecutive working. This uptrend follows the approval of a $7 billion Extended Fund Facility (EFF) by the International Monetary Fund (IMF) earlier this week.

According to the State Bank of Pakistan (SBP), the rupee has appreciated by a net Rs1.13 (0.41%) in just over three weeks, recovering from its five-and-a-half-month low of Rs278.77/$ at the start of September 2024.

The currency's latest boost coincides with Pakistan's request to the IMF to expand the loan by an additional $1-1.5 billion, aimed at financing climate-related reforms. The IMF approved the 37-month EFF on Wednesday, further bolstering investor confidence.

In the open market, the Exchange Companies Association of Pakistan (ECAP) reported that the rupee appreciated by Rs0.15 on a daily basis, closing at Rs280.15 against the dollar.

Senior analyst at Icon Management, Hassan Haider Naqvi noted that exporters began selling US dollars at reduced premiums in the futures market after the new loan programme, increasing foreign currency supply and supporting the rupee. He added that premiums on forward sales dropped by Rs1-1.5 on one to three-month futures contracts, indicating optimism for continued rupee strength in the short to medium term. Naqvi predicted the rupee could improve to Rs270-275 per dollar over the next few months and end the year within the Rs270-280 range. Further gains are expected following the receipt of the first loan tranche from the IMF, he said.

The SBP confirmed receiving $1.03 billion, boosting the country's foreign exchange reserves to a 29-month high of around $10.5 billion. Before receiving the tranche, SBP's reserves stood at $9.53 billion, reflecting an increase of over half a billion dollars in the past two months.