The Pakistani rupee increases against the US dollar on Wednesday as the market appeared optimistic about the outcome of the coalition government’s and IMF’s ongoing negotiations.
Rupee increases against dollar: According to the State Bank of Pakistan (SBP), the rupee gained Rs2.95 or 1.08% in the interbank market to settle at 273.33, up from yesterday’s close of 276.28. The local currency closed on the open market at 279 during this time.
The formal negotiations between Islamabad and the international lender to explore a strategy to rescue the economy and pay off a $1.1 billion loan from a $6.5 billion bailout package that was intended to prevent Pakistan’s economic collapse in 2019 started last month.
To comply with the IMF’s request for the urgently required loan, the government has already increased the price of petroleum goods, which will drive the already record-high inflation rate even higher and raise the prices of power, gas, and other impending commodities.
Due to foreign exchange reserves held by the State Bank of Pakistan reaching a critical level of $3 billion as of January 27, the 220 million-person country requires a bailout plan to pay imports for less than a month.
IMF and Rupee Exchange Rate
Former Ministry of Finance advisor Dr. Khaqan Hassan Najeeb remarked in an interview that it is essential that dollar flows from the IMF, bilateral, and multilateral improve over time to ensure that the rupee moves more steadily in the future.
Najeeb continued, “In a market-based exchange rate, currency movement is mainly dependent on fundamentals, supply and demand, and market sentiment.
According to a recent note from Arif Habib Limited, the government eventually gave in to the IMF’s primary need to resume discussions in late January, allowing the rupee to float freely after months of artificially manipulating the exchange rate.
According to the report, this caused the rupee to depreciate by almost 17% overall since January 23. The currency has remained volatile as foreign exchange reserves continue to fall to all-time lows.
We expect the PKR will continue to be volatile in the immediate term, stabilizing as other bilateral and multilateral flows start coming in and as the IMF assessment closes, given the ongoing discussions with the Fund through Feb. 9 and negotiations on key fiscal measures.
“The repayment of over USD 2 billion in commercial debt and the dramatic decline in foreign reserves will likely result in the PKR/USD closing rate reaching 275 and 290 on June 23 and December 23 respectively, according to our anticipation.”