LAHORE: The rupee gained Rs2.82 against the dollar in the inter-bank market on Monday, touching Rs122.0, appreciating 2.203 percent before closing at Rs125.0425.
The local currency gained Rs5.86 against the greenback, touching Rs122 in the inter-bank market, as it kept swinging during trading, shedding 4.6 percent of its value.
However, the dollar clawed back to gain Rs3 against the rupee before closing at Rs125.0425 in the inter-bank market on Monday.
The rupee had closed at Rs127.86 against the greenback in the inter-bank market on Friday.
This follows after gains witnessed in kerb market over the weekend where the dollar was quoted at 125/126 compared to the pre-election level of 131.80, an appreciation of 4-5 percent, said Topline Securities.
While speaking to Profit, Maha Jafer Butt Director Research Capital Stake said, “The appreciation in rupee comes after news of a $2bn loan from our neighbour China and activation $4.50 billion credit facility from IDB.”
“This would slash down the debt amount and the current account deficit. But if the trend would continue or not will depend largely upon policies and actions of the new government,” said Maha.
Due to the appreciation of the rupee against the dollar in the inter-bank market of Rs5.36, Pakistan’s national debt would decrease by Rs450 billion
Head of Research, Arif Habib Limited Samiullah Tariq while speaking to Profit said,“Dollar has dropped in the interbank market against PKR as there is certainty in the balance of payments with the news of inflows from multiple channels including Credit line from IDB.
“The market is incorporating this news of reducing uncertainty on the balance of payments front positively.”
He added, “As the future outlook becomes clear and investors become confident on the outcome of their future investments. Else with the reducing PKR against USD, their value of investments was going down with every passing day.”
When asked if he saw the resurgence of rupee appreciation continuing, Mr Tariq responded: “I don’t think the PKR appreciation is going to continue as this will hurt exports, however, the excessive depreciation will stop as inflows are expected.”
In a comment to Profit, Director Research Topline Securities Saad Hashemy said “Dollar Interbank rate fell by 3-4% in early trading from Friday’s close of 127.90. The interbank rate could settle around 125 today.
This appreciation is certainly positive for the economy but sustainability given large trade deficit and foreign loan repayments looks unlikely.”
Zeeshan Afzal, analyst Insight Securities said “Curbs on dollar smuggling, higher regulations on dollar buying and movement, recent Chinese loan and expectations of support from friendly countries.”
“General public trimming foreign currency holding as chances of significant gains fading, caused an appreciation of the rupee against the greenback,” Zeeshan added.
The dollar on Saturday continued it’s losing spree against the rupee, dropping even below the interbank rate suggesting ample supply of the US currency in the open market. The rupee gained against the dollar as it traded at Rs122.40 in the open market.
Market experts and analyst believe that this drop-in dollar’s value is due to the political stability as a result of the general elections.
Earlier on Friday the dollar fell against the rupee and traded as low as Rs126-126.50 in the open market – well below the interbank rate of Rs128.
The dollar last week shed Rs7.60 in the open market due to an abundance of supply of US dollars in the kerb market.
The interbank market remained relatively calm with slight fluctuations as it closed at Rs127.86 on Friday versus Rs128.40-128.50 on July 24, a day before the general elections.
On Saturday, Express Tribune reported a $2 billion loan had been sanctioned by China to offset the decline in foreign exchange reserves and ease pressure on the next government.
According to sources in the Ministry of Finance and State Bank of Pakistan (SBP), the $2 billion loan from China will be considered as an “official bilateral inflow”.
Pakistan has been facing a crisis on the external front, with burgeoning trade & current account deficits and depleting foreign exchange reserves.
Also, the next government will face a massive challenge of arranging its external financing needs of $11 billion as repayments on maturing bonds become due in existing FY19 to avoid a balance of payment crisis.
During the last round of devaluation, a week before the elections, SBP said “the PKR-US$ exchange rate in the interbank market closed at PKR 128.0 per US$ against the closing level of PKR 121.55 per US$ of the previous day.
This movement in the exchange rates reflects the demand-supply gap of the foreign exchange in the interbank market.”
It added, “SBP is of the view that this adjustment in the exchange rate along with the increased policy rate and other administrative measures, would help contain domestic demand in general, and reduce the imbalances in the country’s external accounts in particular.”
From December 2017 till the middle of July this year, the rupee has been devalued in four rounds by the State Bank of Pakistan by around 21 percent to stimulate exports, which grew by around 14 percent to $23.228 billion in recently concluded FY18.
However, correspondingly imports skyrocketed to a record high of $60.898 billion, growing 15.10 percent and contributing to the trade deficit reaching $37.670 billion in FY18.
Also, Pakistan’s borrowing hit record highs during FY18 to $11.4 billion including a cash addition of $500 million by China’s State Administration of Foreign Exchange (SAFE), according to data of Ministry of Finance and Economic Affairs.