Rupee stable as pressure mounts on SBP to cut rate

Central bank being urged to call emergency monetary policy meeting

KARACHI:

Pakistani rupee on Monday remained largely stable, ticking down merely Rs0.03 and closed at Rs278.24 against the US dollar in the inter-bank market amid mounting pressure on the central bank to call an emergency meeting to slash its high policy rate.

According to the State Bank of Pakistan’s (SBP) data, the rupee had closed at Rs278.21 against the greenback on Friday.

The Exchange Companies Association of Pakistan (ECAP) reported that in the open market the local currency dropped Rs0.18 to close at Rs279.38/$.

Any cut in policy rate from the record high of 22% will increase demand for US dollars for import payments and pile pressure on the rupee.

The nominal drop in the local currency came at a time when a high-powered Saudi business delegation was in Pakistan to discuss prospects of investment in major projects. An International Monetary Fund (IMF) team is also arriving soon to advance talks and finalise a new and larger loan programme for Pakistan by June-July this year.

Talking to The Express Tribune, ECAP General Secretary Zafar Paracha said the nominal drop in the Pakistani rupee was not unusual as it was part of the daily movement in currency trading. “The fluctuation does not point to any downtrend.”

He stressed that the rupee retreated on a likely drop in supply of the greenback in banking and retail networks. Currency markets sometimes see a slowdown in the inflow of foreign currencies when they resume business after the weekend.

Paracha anticipated that the rupee would gain strength in a day or two on the back of normalisation of inflows of the foreign currency.

He said the rupee would have recovered to Rs250-260/$ had the central bank not intervened in the currency market to purchase dollars to replenish its reserves.

He pointed out that the central bank had purchased $5 billion from the inter-bank market so far in the current fiscal year, limiting gains for the rupee.

The ECAP general secretary was of the view that the entire surplus dollar supply would be absorbed by the central bank in its drive to build foreign currency reserves. However, he added, the bank needed to go slow in dollar purchases in order to let the rupee strengthen further in the future.

Published in The Express Tribune, May 7^th, 2024.

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