Positive review spurs rupee’s strength

Increases Rs1.40 against the dollar in inter-bank market since Nov 1.

KARACHI:

After gaining 1.36% since the start of the month, the dollar traded at Rs101.40 in the interbank market on Wednesday.

The rupee’s value has increased by Rs1.40 against the dollar in the interbank market since November 1. In the open market, its value against the greenback has strengthened by Rs1.45 over the same period.

“The main driver behind the recent appreciation of the rupee against the dollar is the positive review from the International Monetary Fund (IMF),” BMA Capital Director of Research Muhammad Azfer Naseem told The Express Tribune on Wednesday.

In its statement on November 8, the Washington-based lender said the reform programme was ‘broadly on track’ and hinted at the release of approximately $1.1 billion under the Extended Fund Facility (EFF) in December.



Predicting that the rupee-dollar parity is now going to stay around the current level for the remainder of the calendar year, Naseem said the volatility in the foreign exchange market in August was mainly because of the delay in the IMF’s fourth review under the EFF. The dollar had appreciated against the rupee by 3.3% between August 14 and September 4.

“The rupee would be stronger today had the sale of Oil and Gas Development Company (OGDC) shares gone ahead as planned,” he added while referring to the $815 million transaction that ran into snags due to a poor show of interest from institutional investors last week.

However, news reports suggest the government scrapped the offer for sale of 7.5% shares in OGDC with the tacit approval of the IMF. The government aims to bridge the gap between the planned and expected foreign exchange inflows by floating Islamic bonds in the international market and borrowing dollars from local commercial banks.

Naseem said the government is expected to raise at least $1 billion by issuing Sukuks along with a greenshoe option. This means the government may end up selling Islamic bonds worth twice the original size of the offer in case the response from international investors is better than expected.



According to the IMF, Pakistan’s foreign exchange reserves are expected to surpass the benchmark of three months of imports by the end of 2014-15. In other words, the IMF expects Pakistan to increase its foreign exchange reserves, which currently amount to $8.6 billion, by about $3.9 billion before June 2015.

Besides the inflows of at least $1 billion from the Sukuk issue and two tranches of approximately $550 million each from the IMF, the government expects the receipt of around $1 billion from the sale of government’s stake in Habib Bank.

According to a former central banker, the SBP will likely intervene in the foreign exchange market if it shows volatility going forward.

“Neither the IMF nor the SBP would like to see major changes in the exchange rate now,” he said, noting that central bank had stepped in post-December 2013 when the rupee-dollar parity stood at over Rs108.

Published in The Express Tribune, November 13^th, 2014.

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