The rupee continued its recovery against the dollar on Wednesday, making modest gains during interbank trade.

According to the Forex Association of Pakistan (FAP), the greenback was trading at Rs201.45 around 11:50am after losing 55 paisa against the local currency against the previous day's close of Rs202. By closing time on Wednesday, the greenback had lost Rs2 and was being traded at 200.

Data released by the State Bank of Pakistan (SBP) showed the dollar closed at Rs201.52.

'End to speculation'

Exchange Companies Association of Pakistan General Secretary Zafar Paracha identified the rejection of reports by the government and SBP about authorities intending to place restrictions on foreign currency accounts as a reason behind the greenback's transient decline.

He further said that Prime Minister Shehbaz Sharif had directed the SBP to take action against banks involved in "satta bazi" (speculation), which had led to a significant decline in the dollar's rate and stabilisation of the exchange rate.

Mettis Global — a web-based financial data and analytics portal — also reported in the morning that analysts had attributed the rupee's recovery to an SBP "meeting with commercial banks on exchange rate destabilisation".

Speaking to Mettis Global, Paracha highlighted that "in its downward journey this fiscal year, the rupee has been facing sharp fluctuations, providing enough room for speculators to maximise their benefits".

FAP Chairperson Malik Bostan also linked the rupee's recovery to the government and the State Bank of Pakistan dispelling reports of expected restrictions on foreign currency accounts.

"Following the dismissal of these reports, satta baz who were manipulating the rupee's decline have stopped doing so and as a result, the rupee has strengthened," he explained.

Moreover, he said the "pressure on rupee has reduced significantly since oil payments have been made".

'Tough decisions, cap on imports expected'

Bostan also pointed out that the government had assured that it would be taking tough decisions in the upcoming budget to put a cap on imports and in turn, bring down the dollar's value.

"It is expected that the federal cabinet will soon approve the ban on non-essential imports, which will result in a significant decline in imports," he said. "The dollar has witnessed a decline today on account of these reports."

Positive outlook

Komal Mansoor, head of research at Tresmark, explained that "there was some dollar selling by institutions when REER (real effective exchange rate) data was published, showing an undervalued rupee.

"But sustained gains will occur when dollar liquidity is adequate and uncertainty about future flows is removed,“ she said.

Mettis Global director Saad Bin Naseer also said that while the exchange rate had been facing the heat of depreciation for the past several sessions, "we foresee that this heat is about to cool down and it's a matter of one or two important developments that are almost at the final stage.

"First is [the resumption of the loan facility by the] IMF and second, Saudi Arabia funds roll over. And last but not the least, the treasury flow from Beijing," he added. "Its is pertinent to mention that PM's visit to China is due and a delegation will fly to China very soon."

He further said, "Current levels are also attractive for exporters and they only need the assurance of no further rapid depreciation from the existing levels."

More to follow