Rupee makes sharp recovery against dollar for second straight day

KARACHI: The rupee continued to make a sharp recovery against the dollar for the second straight day on Thursday.

The rupee gained Rs2.82 against the dollar to close at Rs270.51 from the previous day’s closing of Rs273.33 in the interbank foreign exchange market.

The local unit recovered Rs5.77, or 2.1 per cent, during the last two sessions. The rupee hit the all-time low of Rs276.58 on February 3, 2023.

The dealers said the State Bank of Pakistan (SBP) has tightened the monitoring of the currency transactions, which helped the local currency recover.

Further, the initiatives of the government to discourage dollar smuggling also supported the local unit. They said that uncertainty in the ongoing IMF talks deteriorated the rupee value.

The rupee started crashing against the dollar on January 26, 2023 just ahead of the visit of the IMF mission. The team of the donor agency would stay in Pakistan till February 9, 2023.

The government had capped the dollar value during the last five months to check inflation. However, this resulted in a huge gap between the rates of the interbank foreign exchange and open markets. Besides, the black market phenomenon also emerged and the dollars were sold at around Rs270 to Rs280.

The government’s intention to cap the dollar rate adversely affected the inflows, especially the workers remittances and export receipts. Besides, huge losses in the shape of outflows due to uncertain exchange rate and fall in the confidence of the foreign investors.

The exchange rate outlook is bleak, as the official foreign exchange reserves fell to around a nine-month low.

The foreign exchange reserves of the State Bank of Pakistan (SBP) fell to $3.086 billion by the week ended January 27, 2023, which is equal to providing import payment for 20 days only.

The import bill for January 2023 has been recorded at $4.856 billion, as per the Pakistan Bureau of Statistics (PBS). The benchmark foreign exchange reserves of a central bank should be at a level to provide three months import cover.

The forex reserves of the SBP fell $592 million to $3.086 billion by week ended January 27, 2023, compared with $3.678 billion a week ago on January 20, 2023.

The official foreign exchange reserves of the central bank declined sharply to an almost nine-year low. Previously, the official foreign exchange reserves of the SBP were seen at $3.87 billion in February 2014.

The foreign exchange reserves held by the central bank witnessed a record high of $20.146 billion by the week ended August 27, 2021. Since then, these have dropped by $17.06 billion.

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