Rupee dips despite forex hitting 2.5-year high

Forex reserves reach $11.04b after 13 weeks of growth, rupee weakens to Rs277.84/$

KARACHI:

Pakistan's foreign exchange reserves, held by the State Bank of Pakistan (SBP), increased by $18 million, reaching a two-and-a-half year high of $11.04 billion for the week ending October 18, according to SBP's latest weekly update on Thursday. This marked the 13th consecutive week of growth.

The persistent surge in foreign exchange reserves suggests ample foreign currency supply in the domestic economy. Despite this, the domestic currency dropped by Rs0.11 to Rs277.84 against the US dollar in the inter-bank market on the same day.

Over the past thirteen weeks, Pakistan's foreign exchange reserves have cumulatively surged by $2 billion. Half of this growth was recorded following the receipt of the International Monetary Fund (IMF)'s first tranche of $1.03 billion in late September.

The central bank did not specify the reason for the latest increase in reserves in its weekly update. However, it recently stated that it was purchasing dollars from domestic currency markets to repay maturing foreign debt on time and bolster the country's foreign exchange reserves.

SBP Chief Jameel Ahmad previously explained that strong inflows of workers' remittances, amounting to $3 billion a month, and increased export earnings are the two major sources of maintaining an ample supply of dollars in the economy. The SBP is purchasing the surplus dollars from local markets.

The SBP has projected that foreign exchange reserves will rise to $13 billion by the end of the current fiscal year on June 30, 2025.

Meanwhile, foreign exchange reserves held by commercial banks decreased by $112.2 million to $4.98 billion in the week under review. As a result, the country's total reserves dropped by $94.2 million to $16.02 billion.

Market speculation suggests that the rupee may have strengthened further, but the central bank's purchasing of dollars prevented the domestic currency from gaining. The currency has remained stable at Rs277-279/$ over the past seven months, and commentators project it will maintain this level until the end of December 2024.