KARACHI: After six weeks the rupee appreciated significantly against the US dollar as it gained Rs2.63, or 1.1 per cent, in the interbank market on Monday.

The State Bank of Pakistan (SBP) reported the closing price at Rs237.02 in the interbank while the currency dealers said the price for Tuesday (tomorrow) was set at Rs236.

The rupee was more aggressive in the open market as it appreciated by Rs7 per dollar for a closing price of Rs237. It is more important the dollar was easily available in the open market while previously it was extremely difficult to purchase dollars from exchange companies, forcing buyers to go to the grey market.

While reports about Ishaq Dar’s return as finance minister played a key role in speculations about the recovery of the local currency; the world sympathy for flood-affected 33 million Pakistanis was another reason for the appreciation.

Hopes and fear rule currency market

The US, United Nations and climate-friendly organisations are raising their voice to pay for the losses suffered by Pakistan. The government’s initial estimate of losses from floods is $30 billion which wrecked the provinces of Sindh and Balochistan while causing severe damages across the country.

Currency experts, both in banks and open market, were hopeful that the country would receive dollar inflows in the coming weeks and months that would help stabilise the exchange rate.

However, a number of currency dealers were happy that Ishaq Dar will take over as new finance minister, expressing hopes that he would bring down the dollar rates as he did in the past.

But analysts and exporters said Mr Dar would not be able to bring down the dollar because of two reasons: IMF will not allow maintaining an artificial exchange rate while an appreciation of the rupee in the current situation would badly damage exports.

“The growth rate is 50pc down compared to last year, 20pc textile units have been closed, cotton crop stands washed out in Sindh, imported cotton is too costly while orders from US and European countries are almost nil,” said Aamir Aziz, a manufacturer and exporter of readymade cotton products.

He said the US and EU countries were facing both inflation and recession, which had slashed their purchasing power; Countries like Pakistan and Bangladesh suffer the most as Western nations make deep cuts in their orders for supplies.

Counterproductive

Analysts said Mr Dar’s previous policy to bring down the dollar below Rs100 proved counterproductive since a cheaper dollar pushed imports and Mr Dar’s government ended in 2018 with a $20 billion current account deficit. The current account deficit in FY22 was $17.3bn, a visible threat to any move to boost the rupee artificially.

However, some analysts were hopeful the exchange rate would improve significantly in the coming weeks after Ishaq Dar’s entry as finance minister.

“The key question is sustainability after improvement in the exchange rate. We hope that new dollar inflows would help strengthen the rupee,” said Samiullah Tariq, head of research and development at Pak-Kuwait Investment Company.

The open market was more optimistic about the recovery of the rupee against the dollar and proved it by slashing the dollar rate by Rs7 in a single session. The dollar was traded at Rs237 in the open market.

Published in Dawn, September 27th, 2022

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