The rupee gained 30 paisas against the dollar on Thursday to close the session at a five-month high of Rs161.82 against the greenback in the open market, data released by the Exchange Companies Association of Pakistan (ECAP) showed.
“The dollar is likely to hit Rs160 by December of this year, mainly on account of declining imports and a significant jump in remittances,” said ECAP Chairman Zafar Paracha while speaking to Dawn.
The rupee’s appreciation comes on the heels of a record current account surplus of $792 million in the first quarter of the current fiscal year, as reported by the State Bank of Pakistan (SBP) on Wednesday. Higher inflows — to the tune of $2 billion per month over the last four months in the form of remittances — and lower outflows due to lower oil imports; debt suspension by the G20 countries; and a rebound in textile exports have helped stabilise the rupee.
The dollar peaked against the rupee at Rs168.43 on August 26 but has fallen more than 3.9 per cent or Rs6.61 since then.
“Steps taken by the State Bank towards increasing the flow of remittances through the official banking channels have also helped stabilise the currency in recent weeks,” Paracha noted.
Inflows through official channels have increased due to the grounding of flights over the last six months after the outbreak of Covid-19. According to Paracha, this has been a key reason behind the higher remittance numbers in the last few months.
Explaining the rupee’s appreciation, Intermarket Securities Head of Research Saad Ali said, “We think the lack of weakness in the external account has been a key factor (SBP reserves are over $12bn), but this is also reportedly led by the IMF suggesting to Pakistani authorities to let the currency find a fair level based on market conditions.”
The SBP on Thursday reported a $268m increase in foreign exchange reserves in the week ending on October 16 to $12.066 billion.
Ali said there has been significant bilateral/multilateral financial assistance this year which has not been matched by an equal currency move, and with the current account hitting a surplus for the third consecutive month, this was inevitable.
“The appreciation should continue in the near-term in our view. However, there are debt repayments due next year. Just recently, the G20 agreed to extend the moratorium on debt repayments for another six months. We think next year the PKR can witness volatility although the revival of the $6bn IMF programme should offer support,” he added, while sharing the outlook for the next few months.
“The rupee is showing improvement mainly due to the improvement in the balance-of-payments situation. The current account has remained in surplus in the past three months owing mainly to in-check trade balance and record-high remittances number,” said BMA Capital’s research head Faizan Ahmed.
“The country's Real Effective Exchange Rate (REER) for the month of June 2020 also shows undervaluation of PKR. Apart from this, healthy inflows in Roshan Pakistan Digital Account are also driving optimism in the currency,” he added.
Correction: An earlier version of this story incorrectly stated that the rupee gained 60 paisas against the dollar, instead of 30 paisas. The error is regretted.