KARACHI: The rupee bounced back after two months of decline, rising by 0.65 per cent in the interbank market to close at 267.89 against the dollar on Tuesday, according to the central bank data.
However, the local currency still slightly dropped in the open market, trading at 276.5 by the close on Tuesday compared to 275 a day ago. Its rate in the black market was in the range of 280 to 285.
Meanwhile, Fitch Solutions said, “We believe that the rupee’s weakness still has further to run, particularly with Pakistan’s balance-of-payments position likely to remain weak for several more months.”
In its prolonged period of depreciation since Dec 1, the rupee lost most of its value during the previous three sessions, falling by 14.4pc from 230.89 on Jan 25 to 269.63 on Jan 30.
Jumps 0.65pc to close at 267.89 in interbank market in first rally since Dec 1
That massive decline came after the country last week removed an artificial cap on the rupee. The currency markets still remain shaky over the ultimate price of the dollar in the coming days.
Bankers said that exporters sold their proceeds, but limited inflow was noted. The bankers were expecting that with the uncapping of the exchange rate, exporters would sell their holdings.
“The liquidity improved both in the interbank and the open market showing some inflows. Banks also provided cash dollars to some exchange companies,” said Zafar Paracha, general secretary of the Exchange Companies Association of Pakistan (ECAP).
A banker said no letter of credit (LC) was opened, but currency dealers in the open market said the market was liquid and dollars were available. “The open market was offering dollars at around Rs275 while the interbank during the day fell to Rs265. The rate increased at the time of the closing,” he said.
Financial experts believe that the slight improvement in the rupee’s value was due to the resumption of talks with the International Monetary Fund (IMF), but some currency dealers said the impact of the talks was yet to come.
“We believe large inflows from exporters once talks with the IMF
end on a positive note,” said Atif Ahmed, a currency dealer in the interbank market.
Fitch said a weak rupee would bring more inflation and reduce the economic growth rate. “In the near term, it (dollar’s appreciation) could exacerbate imported inflationary pressure, rise in inflation may eventually result in steeper policy rate hikes from the SBP”, the rating agency said, adding that these factors would only exacerbate Pakistan’s challenging economic outlook.
Fitch expects the economy to contract by 0.3pc in the ongoing fiscal year.
Equally, however, the rupee’s devaluation would help Pakistan with securing further disbursements from the IMF, it added.
“Loans from the IMF would be a positive for the longer-term outlook. Loans would help ease Pakistan’s balance of payments strains,” Fitch said.
“One condition under the IMF’s External Fund Facility agreement is for Pakistan to move towards an exchange rate regime that is determined by market forces,” it said.
Published in Dawn, February 1st, 2023
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