The Pakistani currency is demonstrating signs of stability, hovering near and around the current level, slightly below Rs286 against the US dollar in the interbank market. The currency faced resistance in achieving substantial gains on the fourth consecutive working day of an uptrend on Tuesday.
According to State Bank of Pakistan (SBP) data, the domestic currency improved by 0.06%, or Rs0.18, closing at an 11-day high at Rs285.79 against the greenback.
Over the past four days, the currency has cumulatively improved by 0.82%, or Rs2.35, against the foreign currency to date.
The Exchange Companies Association of Pakistan (ECAP) reported that the local currency reduced by 0.08%, or Rs0.25, closing at Rs287.25/$ in the open market.
Earlier market discussions suggested that the currency would stabilise around Rs285/$ in the short run but might decline beyond Rs300/$ by the end of the fiscal year in June 2024.
The currency is facing resistance in achieving larger gains due to low foreign exchange reserves, standing at below a two-month import cover at $7.5 billion.
Despite the country reporting a breakeven current account deficit for the second consecutive month at $74 million, the currency market has largely ignored it. This is noteworthy, especially considering the improvement in monthly imports, exceeding $4 billion a month in October.
Read Forex reserves decline by $115 million
Simultaneously, the growth in export earnings and the inflow of workers’ remittances offset the surge in imports. This suggests that demand for foreign currency and its supply have remained in balance, at least for the month.
The recent spell of recovery in the local currency was triggered by Pakistan achieving a staff-level agreement with the International Monetary Fund (IMF) at the conclusion of its first economic review under its $3 billion loan programme.
This agreement indicates that Pakistan has qualified for the second tranche of the loan, amounting to $700 million. The IMF executive board is scheduled to meet on December 7, likely giving its final approval for the release of the tranche. This receipt would increase the supply of foreign currency and support the rupee against the greenback.
Published in The Express Tribune, November 22nd, 2023.
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