KARACHI: Unlike the outgoing fiscal year, the rupee-dollar parity will likely stay steady in 2024-25 as the local currency lost just nine paise against the greenback in the interbank market on Thursday.

Currency dealers in the banking market said the exchange rate stability is supported by a meagre current account deficit, which contracted to just $202 million during the first 10 months of FY24, compared to $3.92 billion in the corresponding period last year.

The exchange rate at the beginning of FY24 was highly vulnerable, and the rupee plunged to Rs306 against the dollar during the first week of July 2023.

Some currency dealers said the State Bank’s foreign exchange reserves, about $9bn, were another major reason for the exchange rate stability. However, some experts said that the reserves position looks weak in the wake of the $8bn debt servicing required in the first two months of FY25.

Experts foresee exchange rate stability in next fiscal year

“In the presence of all positive reasons, the expected IMF deal for the new loan would support the market more than anything for stabilising exchange rate,” said Atif Ahmed, a currency dealer in the interbank market.

Most analysts believe the current exchange rate is being managed with the IMF’s permission, which means the exchange parity will remain intact.

Earlier, the IMF had been the most critical of SBP’s exchange rate management. “Since the government is blindly following the IMF’s directions for generating revenue without considering the consequences on economic growth and negative impacts on trade and industry, hope is high for the next loan package”, said Amir Aziz, an exporter in Karachi.

According to the State Bank, the dollar settled at Rs278.60 compared to Rs278.51 before Eid holidays.

However, the open market was relatively busy as the inflows remained high due to Eid. Exchange companies have maintained a difference of Rs3 per dollar between selling and buying rates. The dollar selling and buying rates were Rs280.32 and Rs277.61.

According to the exchange companies, the inflows remained high in June, as in the previous month. These firms sold $450m to the banks in May and expected the same inflows at the end of the current month.

The exchange rate remained stable for the last four months, with minor fluctuations in both ways.

SBP reserves rise

The State Bank’s foreign exchange reserves increased by $31m to $9.134bn during the week ending on June 14.

The increase showed no inflow, while the bankers maintained that the central bank had been buying dollars from the interbank market.

The country’s total foreign exchange reserves during the week were $14.414bn, including $5.279bn held by commercial banks.

Published in Dawn, June 21st, 2024