KARACHI: The Pakistani rupee made a strong comeback on Friday, rising to 199 against the US dollar in intra-day trade on the interbank market.
This was due to an uptick in market mood following an overnight unexpected boost in petroleum product prices, which raised hopes for a resurrection of the International Monetary Fund’s (IMF) programme.
The local currency was likewise trading at 198 against the dollar in the early hours of Friday.
Late on Thursday, the government increased the price of petrol and diesel by Rs30 per litre to meet the IMF’s final requirement for the delivery of the next $900 million tranche of the $6 billion bailout. The increase in prices signalled an impending improvement in economic conditions and lowered the risk of a default-like situation, restoring trust in the foreign exchange market.
Finance Minister Miftah Ismail, on the other hand, recognised that the measure will contribute to inflation to some level, but claimed that the government had no alternative because it had already paid a Rs56 per litre diesel subsidy.
Tahir Abbas, the Head of Research at Arif Habib Limited, said that the increase in the local currency was due to a rise in the price of petroleum goods.
“Increase in the rates of petroleum products is a clear indication that Pakistan has decided to make all-out efforts to resume the stalled IMF programme hence the market sentiment has strengthened,” he said. “The country looks ready to take tough measures to support the economy hence economic indicators are improving.”
Furthermore, the element of ambiguity has dissipated, and the market now has clarity, he continued.
On Thursday, the local currency finished at 202.01 after a daily depreciation of 9 paisas or 0.04 percent, a modest drop from prior sessions. Due to eroding investor confidence in the economy and political uncertainties, the Pakistani rupee has been dropping since April 30, 2022.
Meanwhile, the State Bank of Pakistan’s (SBP) foreign exchange reserves fell by $75 million from May 13 to May 20, bringing the total to $10.09 billion, which is still less than 1.5 months of import cover.
On the international front, the US dollar fell to a one-month low against key rivals on Friday as traders downgraded Fed rate hike expectations amid signals the central bank may delay or possibly halt its tightening cycle in the second half of the year.
For the first time since April 25, the dollar index, which measures the greenback against a basket of six major counterparts, dipped to 101.43. The demand for the dollar as a safe haven was further slashed by a surge in Asian stocks.
