Rupee appreciates over lower dollar demand

Pakistani currency on Wednesday appreciated Rs0.08 to close at Rs277.85 against the US dollar in the inter-bank market on the back of higher supply of foreign currency and its lower demand. With the appreciation, the rupee ended a two-day losing streak.

According to the State Bank of Pakistan's (SBP) data, the local currency cumulatively dropped Rs0.18 in the past two days, settling at Rs277.93/$ on Tuesday.

Exchange Companies Association of Pakistan reported that the rupee edged up Rs0.03 on a day-on-day basis in the open market and closed at Rs278.80/$.

The recovery came in the wake of continuous reduction in global oil prices, which slashed demand for the greenback for import payments. Pakistan heavily relies on imported energy as oil and gas comprise 20-25% of the overall imports.

High officials of the central bank said the other day that domestic markets had ample foreign currency supplies amid strong inflows of worker remittances and improvement in export earnings. Secondly, the government's strategy to restrict imports, equivalent to the sum of remittances and export proceeds, is creating a surplus of the greenback, allowing the central bank to absorb excess supplies to boost the country's foreign exchange reserves.

The rupee has remained largely stable in the range of Rs277-279/$ over the past 10 months. It is projected to stay strong by the end of December this year.

The currency has also got support from the government's proposal to the International Monetary Fund (IMF) to allow a flexible revenue collection target with no immediate need to announce a mini-budget for imposing new taxes and increasing the rates of taxes. Rather higher tax rates are an impediment to the collection of targeted revenue.

A successful completion of the ongoing first IMF review of economic performance will pave the way for the release of a second loan tranche of around $1 billion.