The rupee appreciated another 18 paisas in the interbank market on Monday to close the session at Rs158.91 against the dollar, exchange rates released by the State Bank of Pakistan (SBP) showed.

“The key reasons for the appreciation are robust momentum in exports and remittances and decent flows from Roshan Digital Accounts,” said Saad Ali of Intermarket Securities. He noted that the adoption of a market-determined exchange rate has helped the rupee-dollar parity.

The rupee is currently at a six-and-a-half-month high, appreciating by Rs9.52 or 5.6 per cent against the greenback since hitting an all-time low of Rs168.43 on August 26.

Meanwhile in the open market on Monday, the dollar was down 50 paisas to trade at Rs158.80. The dollar in the open market has fallen as much as Rs10.2 since reaching a peak of Rs169.

“I think the appreciation of the currency against the US dollar [has] surprised many. It was possibly driven by the current account surplus as well as inflows from overseas Pakistanis through Roshan Digital,” commented KASB Securities Chairman Ali Farid Khawaja.

However, Khawaja said this manner of rupee's appreciation was neither sustainable nor advisable. “The government wants to improve exports and has given a target of $37 billion of exports and we know that a stronger PKR hurts exports.”

“I think the exchange rate fluctuation reflects the timing of the flows. It will depreciate when the government will need to make the debt repayments which are due later in the fiscal year. The good thing is that the movement of the exchange rate shows that it is not managed and can move in either direction depending on the demand and supply situation,” he added.

Sharing his outlook on the exchange rate, Khawaja said “the current account surplus and exchange rate movement shows that now it has been brought under control. The real test will be how the International Monetary Fund reacts to it once we get back into the programme. Will they make currency depreciation a precondition for the resumption of the programme? I think they might.”

Third-best currency in Asia

Bloomberg data showed the Pakistani rupee was the third best performing currency in Asia behind the Indonesian rupiah and South Korean won. The Pakistani currency has appreciated by 3.1pc since October 1 whereas the Indonesian rupiah — first on the list — improved by 4.51pc and the South Korean won appreciated 3.6pc during the month.

“The US dollar index is down about 10pc since its high this year during March 2020. This along with Pakistan's current account surplus on the back of higher remittances has resulted in the appreciation of the rupee versus the dollar. Pakistan's REER [Real Effective Exchange Rate] is also at a comfortable level of 94.1,” noted Syed Atif Zafar, chief economist at Topline Securities.