The rupee finally broke its losing streak against the dollar on Wednesday, gaining Rs1.80 in the early morning interbank market, a day after the government struck the long-awaited deal with the International Monetary Fund (IMF).
According to the Forex Association of Pakistan (FAP), the rupee appreciated Rs1.80 to Rs210 against the dollar at 9:49 AM from Tuesday’s close at Rs211.80. However, by 10:45 AM, the rupee had reversed some of today’s gains to reach Rs211 in interbank trading.
The development comes after weeks of continued declines in the value of the rupee, largely attributed to the country’s rising import bill and the depletion of foreign exchange reserves. Yesterday, the greenback was at an all-time high, appreciated at a sharp Rs2 and had seen a bull run against the local currency for the eighth consecutive session. Since April 11, when the PML-N coalition government took over, the dollar has risen more than Rs30.
Zafar Paracha, general secretary of the Exchange Companies Association of Pakistan, attributed the rupee’s recovery to the good news regarding the IMF deal. “Hopefully, when the deal closes by the end of this week, the deal will pave the way for loans from China and other financial institutions.”
Komal Mansoor, head of research at Tresmark, also said the market had expected the local currency to recover from the 212 mark based on the IMF deal, which is exactly what happened.
“Now that the tax reform and the petroleum tax have been implemented, there is no other major hurdle,” she noted, confident that market sentiment will shift from “extremely negative to neutral” and ultimately positive.
Meanwhile, Mettis Global Director Saad Bin Naseer told: Dawn.com that while the rupee has found some support in IMF news, it is likely to remain under pressure over the next few sessions until a final confirmation is announced.
The IMF’s loan facility had been stalled since early April due to inconclusive negotiations with the international lender, with the lender previously expressing concerns about fuel and energy subsidies introduced by the previous PTI government and now the targets set by the new government are set for the coming fiscal year.
Pakistan had signed a $6 billion 39-month extension facility with the IMF in July 2019, but the fund withdrew about $3 billion when the previous government defaulted on its commitments and announced fuel and energy subsidies.
Last night, however, Pakistan made a breakthrough with the federal budget program for 2022-23, triggering a revival of the Extended Fund Facility (EFF) after authorities pledged to generate Rs436 billion more in taxes and gradually increase the petroleum tax to Rs. 50 a litre.
Earlier, the IMF resident in Pakistan, Esther Perez Ruiz, told: dawn: “Talks between IMF staff and authorities on policies to strengthen macroeconomic stability in the coming year continue.”
The IMF mission will finalize monetary targets with the State Bank in the coming days and in the meantime share the draft Memorandum of Economic and Financial Policy (MEFP).
More to follow