Rupee makes sharp recovery on anti-smuggling initiatives

• The rupee gained Rs2.95 to close at Rs273.33 against the greenback from the previous day’s closing.
• The rupee had recorded the all-time low of Rs276.58 to the dollar on February 3, 2023.
• The exchange rate outlook is bleak, as the official foreign exchange reserves fell to around nine-month low.

KARACHI: The rupee made sharp recovery on Wednesday against the dollar after the local authorities took anti-smuggling initiatives to prevent illicit movement of the dollars, dealers said.

The rupee gained Rs2.95 to close at Rs273.33 against the greenback from the previous day’s closing of Rs276.28 in the interbank foreign exchange market.

The dealers said that reportedly a huge amount of dollars was being smuggled to Afghanistan on a daily basis. The local authorities tightened the security and took anti-smuggling initiatives to stop illegal outflow of dollars, they added.

The rupee had recorded the all-time low of Rs276.58 to the dollar on February 3, 2023.

The dealers said uncertainty in the ongoing International Monetary Fund (IMF) talks deteriorated the rupee value.

The rupee started crashing against the dollar late January 2023 just ahead of the visit of the IMF team to Pakistan. The team of the donor agency is scheduled to 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 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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