| The Pakistani rupee continued to recover for the second consecutive day on Thursday, with analysts attributing it to expectations that the government would reach an agreement with the International Monetary Fund (IMF).
The local currency was changing hands at Rs268.5 per dollar in the interbank market at 12pm, an appreciation of Rs4.83 or 1.77 per cent from yesterday’s close of Rs273.33, data shared by the Exchange Companies Association of Pakistan (Ecap) showed.
Tresmark’s Head of Strategy Komal Mansoor said the rupee’s upward movement was in anticipation that a Memorandum of Economic and Fiscal Policies (MEFP) between the government and the IMF delegation would be finalised today.
“There seems to be broad-level consensus on the reforms between the [finance] ministry and IMF,” she commented.
Ecap General Secretary Zafar Paracha also said the main reason for the rupee’s recovery was the expectation that the IMF deal would be reached soon.
He said that after an unofficial cap on the exchange rate was removed, the difference between dollar rates in the interbank, open and grey markets had been reduced, after which exporters started encashing their proceeds and remittances flowed in.
Paracha said that for the rupee to recover sustainably in the long run, the government needed to come up with an economic plan in conjunction with businessmen and traders, reduce expenditures and revisit the country’s policies regarding Afghanistan and Iran.
A delegation of the IMF, headed by Nathan Porter, is currently in Islamabad for discussions on the completion of the ninth review of a $7 billion loan programme. The review’s completion would not only lead to a disbursement of $1.2bn from the IMF but also unlock inflows from friendly countries and other multilateral lenders that Pakistan needs to stave off default.
Meanwhile, Saad bin Naseer, director of financial data and analytics portal Mettis Global, said he expected the PKR to settle around Rs260 or below per dollar once the IMF programme was revived.
“Estimated calculations [show] the Real Effective Exchange Rate (REER) is close to 90, indicating that the PKR is currently undervalued,” he said.
The REER measures the value of a currency in relation to its major trading partners.
Naseer said he also expected a significant inflow from export proceeds and remittances once the currency stabilised.
The rupee recovered by Rs2.95 against the dollar in the interbank market on Wednesday.
Currency dealers and experts said that the local currency has found some strength in the range of Rs270-Rs276 since the dollar rate was uncapped.
The rupee’s value had declined rapidly after an unofficial cap on the USD-PKR exchange rate was removed on Jan 26. Consequently, it lost Rs24.54 or 10.6pc — the largest single-day decline in both absolute and percentage terms since the new exchange rate system was introduced in 1999.
MEFP with IMF
The removal of the price cap on the exchange rate was one of the conditions set by the IMF for the revival of talks on the ninth review.
Analysts termed the rupee’s depreciation a “much-needed adjustment”. The removal of the cap resulted in the interbank and open markets aligning more closely, with currency dealers now expecting a black market in dollars to eventually dry up.
The IMF delegation had arrived in Pakistan on Jan 31.
Minister of State for Finance and Revenue Aisha Ghaus Pasha told journalists on Wednesday that the government and the global lender were “very close to the finalisation” of a Memorandum of Economic and Fiscal Policies.
She said the MEFP would be handed over to Pakistan by the IMF once all issues are finally settled. She said a lot of things had been settled and they required clarity on some of them that the government team was trying to address.
This was also confirmed by the Ministry of Finance. In a written statement, the ministry said the talks with the IMF continued on Wednesday and “focused on fiscal table, financing, etc. There is a broad consensus on the reform actions and measures”. |
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