The PKR continued to recover for the second consecutive session on Wednesday, gaining Rs1.37 against the dollar in the interbank market.

The local currency closed at Rs218.75 per dollar after appreciating 0.63 per cent.

Separately, the PKR was changing hands at Rs218.5 per dollar in the open market at 4:40pm, data shared by the Forex Association of Pakistan showed.

Exchange Companies Association of Pakistan (Ecap) General Secretary Zafar Paracha said demand for the greenback fell and investor confidence was restored after the International Monetary Fund (IMF) approved the release of a crucial $1.1 billion loan tranche.

He added that the big difference between the dollar rates in the interbank and open markets was reduced and expected to dip further.

“It appears the rupee’s value can improve to 200 per dollar in the coming days,” Paracha said, adding that smuggling of the dollar to Afghanistan also stopped after stricter controls at the border.

Alpha Beta Core CEO Khurram Schehzad said the rupee improved not only because of the IMF bailout but also because of foreign exchange received as aid for flood-relief efforts.

The foreign exchange would alleviate pressure on the economy, he commented.

“It is expected that a [positive] sentiment will be created and investors will become confident after the tranche is released next week and it leads to [the rupee’s] recovery.”

IMF bailout

The IMF’s Exe­cu­tive Board completed the combined 7th and 8th revi­ews of a loan facility for Pak­is­tan, allowing immediate disbursement of $1.1bn to the country, an official announcement issued late on Monday night stated.

The board also approved “rephasing and augmentation” of Pakistan’s access to the funds by SDR720 million ($934m) that will bring the total access under the Extended Fund Facility to about $6.5bn.

Economic stakeholders and currency dealers had anticipated the rupee to rebound strongly against the greenback with the revival of the IMF loan programme.

However, currency dealers in banks revealed that the State Bank of Pakistan was against a sharp depreciation of the dollar in one go as exporters were allowed to market their holdings.

“The dollar could see a steep cut of up to four or five rupees with the resumption of the IMF loan, but the SBP, which manages the exchange rate with verbal instructions, did not allow the market to see a sudden devaluation of the dollar,” said Atif Ahmed, a currency dealer in the banks.

The rupee had fallen to a record low of 239.94 on July 28. It had then recovered for 11 consecutive sessions, closing at Rs213.90 in the interbank on Aug 16.

It had started falling again from Aug 17, losing Rs8.02 till Aug 29.

Ecap reported the dollar was traded at a price of Rs222 in the open market on Tuesday while it was pegged at Rs230 on Monday — a decline of Rs8 per dollar.

The open market has been facing a severe shortage of foreign currencies as it seeks to increase its dollar holdings.