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KARACHI:
The Pakistani rupee has displayed significant strength, breaching the Rs290 mark against the US dollar for the first time in the past seven weeks. This marks its fifteenth consecutive working day of gains on Tuesday.
According to data from the State Bank of Pakistan (SBP), the domestic currency has made further gains, appreciating by 0.37% or Rs1.06, reaching a high of Rs289.80 against the US dollar. This places it just Rs1.31 away from its pre-interim government value of Rs288.49/$ in mid-August.
Over the past 15 working days, the Pakistani currency has cumulatively regained almost 6% or Rs17.30 against the US dollar. This remarkable turnaround comes after the currency had experienced depreciation of slightly over 6% or Rs18.60 in the first week of September 2023, reaching an all-time low of Rs307.10 against the dollar. This occurred before the caretaker Prime Minister Anwaarul Haq Kakar took office in mid-August 2023.
Market reports suggest that foreign currency inflows have improved since the government and the central bank took action against currency smugglers, speculators, and hoarders. The State Bank of Pakistan has continued to suspend the licenses of exchange companies allegedly involved in illicit trade activities.
Last week, a leading currency dealer pointed out that dealers have been surrendering $15 million a day in the interbank market in recent weeks, compared to $5-7 million before the crackdown. This increased flow of foreign currencies into the interbank network is expected to continue in the coming days.
The crackdown has succeeded in attracting inflows through official channels. Exporters have started selling their holdings on futures counters, anticipating further currency recovery to Rs260-280/$ in the ongoing upward cycle. Similarly, inflows of workers’ remittances through official channels have improved in recent days.
Recently, Arif Habib Limited has also expressed optimism, stating that the currency may appreciate further to Rs278-280/$ during the current rally. The Interim Commerce Minister, Gohar Ejaz, previously stated that the actual value of the currency currently stands at Rs260/$.
In the open market, the local currency has gained 0.68%, or Rs2, reaching Rs291/$, according to the Exchange Companies Association of Pakistan (ECAP). In the retail market, it has cumulatively recovered nearly 13% or Rs37 over the past month.
The difference in the value of the rupee between the interbank and open markets has narrowed to 0.41% (Rs1.20), well below the maximum spread of 1.25% (almost Rs4) recommended by the IMF.
While the rupee’s appreciation has raised hopes for a reduction of Rs10-12 per litre in petroleum product prices, there are concerns that the global oil market could see price hikes. This follows Russia’s decision to ban the export of diesel and co-products in order to stabilise prices in its local market ahead of winter. Such global price increases could impact Pakistan’s market and potentially prevent a downward revision in prices.
Published in The Express Tribune, September 27th, 2023.
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