The rupee snapped its losing streak against the dollar on Wednesday, gaining Rs1.80 in the early morning interbank market.
The government secured the much-anticipated deal with the International Monetary Fund (IMF), which is expected to improve the country’s economic outlook.
The Forex Association of Pakistan (FAP) said the rupee appreciated from Rs1.80 to Rs210 against the dollar at 9:49 am from Tuesday’s close of Rs211.80. However, by 10:45 am, the rupee had reversed some of today’s gains to reach Rs211 in interbank trade.
The current development follows weeks of decreases in the rupee’s value, which have been largely attributed to the country’s increasing import bill and decreasing foreign exchange reserves. Yesterday, the greenback reached an all-time high, appreciating by a sharp Rs2, and had been steadily gaining value against the rupee for the eighth session in a row. Since April 11, when the PML-N coalition government took over, the dollar has gained over Rs30.
Zafar Paracha, general secretary of the Exchange Companies Association of Pakistan, credited the rupee’s recovery to the good news related to the IMF deal. “Hopefully, once the deal is finalised by the end of this week, it will pave way for a loan from China and other financial institutions.”
Komal Mansoor, research head at Tresmark, noted that the market had been expecting the local currency to rebound from the 212-mark based on the IMF deal, which was exactly what happened.
“With the tax reform and petroleum levy implemented, there is no other major hurdle,” she said, confident that the market sentiment will change from “extreme negative to neutral” and eventually positive.
Meanwhile, Mettis Global Director Saad Bin Naseer told that although the rupee has found some support from the IMF news, it was likely to remain under pressure during the next few sessions until a final confirmation was announced.
The IMF loan facility has been stalled since early April due to inconclusive negotiations with the international money lender. The lender had previously expressed reservations over fuel and energy subsidies introduced by the previous PTI government, and now has reservations over targets set by the new government for the upcoming fiscal year.
Pakistan signed a 39-month, $6bn Extended Fund Facility with the IMF in July 2019, but the Fund stopped the disbursement of about $3bn when the previous government reneged on its commitments and announced fuel and energy subsidies.
In a breakthrough last night, Pakistan reached an agreement with the IMF on the federal budget for 2022-23. This will lead to the revival of the extended fund facility (EFF) after authorities committed to generate Rs436 billion in more taxes and increase the petroleum levy gradually up to Rs50 per litre.
Earlier, IMF Resident Representative in Pakistan, Esther Perez Ruiz told: “Discussions between the IMF staff and the authorities on policies to strengthen macroeconomic stability in the coming year continue.”
The IMF mission will finalize monetary targets with the State Bank over the next couple of days and, in the meantime, share the draft of a Memorandum of Economic and Financial Policy (MEFP).
