Continuing its recovery, the rupee on Monday appreciated by 70 paisa against the US dollar in the interbank trade, a development which is largely being attributed to the change in market sentiments over the government’s expected deal with the International Monetary Fund (IMF) after it complied with its condition to raise fuel prices.
According to the Forex Association of Pakistan (FAP), at around 11am, the greenback depreciated to Rs198.40 — down Rs1.20 against Friday’s close of Rs199.60 (FAP figure).
The dollar subsequently closed at Rs199.06, according to the State Bank of Pakistan (SBP) — down 70 paisa against Friday’s close of Rs199.76 (SBP figure).
This is the second continuous session during which the dollar is depreciating against the rupee. On Friday, the greenback had lost Rs2.35.
Since the PML-N-led coalition government took over on April 11, when the dollar was valued at Rs182.30, the greenback rose around Rs20 to breach Rs202 by May 26.
But after weeks of persistent declines — which had been largely attributed to the country’s rising import bill, widening current account deficit and depleting foreign exchange reserves — on Friday, the rupee finally broke its losing streak after the government decided to lift the fuel price cap to comply with the conditions of the IMF.
Komal Mansoor, head of research at Tresmark, told Dawn.com that the recovery of the rupee reflected the change in sentiments on the back of an expected IMF deal, which appeared to be very close and would boost the country’s foreign exchange reserves.
“Rupee lost value this month over concerns of depleted reserves, hence, any positive news regarding the reserves will naturally support the rupee,” she said, pointing out the rupee “is materially undervalued” on an REER [real effective exchange rate] basis — the weighted average of a country’s currency in relation to an index or basket of other major currencies.
Mansoor added that exporters were now looking forward and the market was eyeing further gains with Rs196 as the interim target.
General secretary of the Exchange Companies Association of Pakistan, Zafar Paracha, was confident that the rupee’s recovery would continue this week. “In the upcoming days, there are chances of the greenback depreciating further which will help the economy.”
Meanwhile, the CEO of Alpha Beta Core, Khurram Shehzad, said that while the government was well aware of the rupee’s external devaluation, the internal devaluation of the currency was synonymous with austerity measures.
“For instance, individual members of a currency union like Euro are unable to do anything about the common currency if they find themselves in a difficult economic situation. They have no option but to cut down salaries of government employees, privatise and sacrifice growth to achieve stability,” he explained.
This option was available to Pakistan as well if it did not want the currency to further devalue, Shehzad added.
Last week, the government raised the prices of all petroleum products by Rs30 per litre — the highest-ever increase in the prices of all petroleum products in one go — in a bid to rein in the fuel subsidies that had been a sticking point in talks with the IMF and resumption of a $6 billion facility, which has been stalled since early April.
Announcing the price hike, Finance Minister Miftah Ismail expressed the hope that now the exchange rate would improve, markets would stabilise, economy would balance out and investors would take the decision positively.
Dawn’s weekly rupee-dollar parity report, published on Monday, showed that after the government’s decision was announced, the rupee started appreciating.