KARACHI: The rupee made the highest-ever single-day recovery in the interbank market against the US dollar on Thursday, but the currency market was not clear about the actual reason behind the appreciation.

The dollar has been dominating the exchange rate over the past year, with the rupee losing about 24 per cent since the beginning of the fiscal year, which is set to end on June 30.

According to the State Bank of Pakistan (SBP), the rupee jumped 2.27pc (Rs4.7) to close at Rs207.23 on Thursday.

Since the currency market has turned into a speculative and news-driven market, fluctuations in the exchange rate are now unpredictable.

Local currency snaps nine-day losing streak amid news of $2.3bn coming in from China

However, currency dealers believed that the main reason for a surge in the rupee’s value was a statement of Finance Minister Miftah Ismail, who assured the nation that Pakistan would receive a $2.3 billion loan from China within a couple of days.

On Wednesday, he tweeted: “The Chinese consortium of banks has today signed the RMB [renminbi] 15bn (around $2.3bn) loan facility agreement after it was signed by the Pakistani side yesterday. Inflow is expected within a couple of days. We thank the Chinese government for facilitating this transaction.”

The rupee’s recovery came after nine sessions of losses, during which the currency lost 5.39pc, the head of research at Pak Kuwait Development and Investment Company, Samiullah Tariq said in his report.

Most analysts were not sure that the inflow of dollars from China could reverse the current situation since the external front of the economy is under immense pressure from trade and current account deficits.

At the same time, fuel prices remain high at home despite some relaxation in global oil prices.

Pakistan, which spends large amounts of dollars on importing oil and gas, is currently faced with prolonged power outages amid an energy shortage. The trade and manufacturing sectors have taken a significant hit as a result, which will ultimately curtail the economic growth rate.

Currency dealers in the interbank market said exporters were selling dollars much faster on Thursday. Exporters generally keep dollars with them as many days as possible to get maximum benefits. However, they started offloading the greenback after news of the Chinese loan agreement, helping the rupee to appreciate.

Currency experts in the banking market were unsure whether the rupee would sustain Thursday’s gains. However, representative of exchange companies Malik Bostan believed the dollar would come down to Rs200 once inflows from China and the International Monetary Fund reach Pakistan.

On Thursday, the dollar was traded at Rs209 in the open market and was quoted at even lower rates by some exchange companies.

SBP reserves

Foreign exchange reserves held by the central bank fell sharply by $748 million to $8.23bn during the week ended on June 17.

With commercial banks holding $5.97bn, the country’s overall reserves stood at $14.21bn at the end of the week.

Published in Dawn, June 24th, 2022

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