Pakistani currency maintained its uptrend for the sixth successive working day, as it further gained 0.94% (or Rs2.11) to close at Rs224.04 against the US dollar in the inter-bank market on Friday.
The rupee has continued to recover against the greenback as supply of the foreign currency increased consistently compared to its demand in the system.
Exporters are selling dollars in the market amid the rupee’s appreciation. Earlier, they withheld dollar supplies in anticipation of more depreciation of the local currency.
The rupee closed at Rs226.15 on Thursday, according to the central bank data. The currency has regained 6.63% (or Rs15.90) in the past six consecutive working days.
Prior to that, the rupee nosedived 13.75% (or Rs31.31) for 10 consecutive working days to an all-time low at Rs239.94 against the greenback on July 28.
The rupee saw the largest daily recovery of Rs9.58 (or 4%) on Wednesday after the country reported a reduction in trade deficit to half in July compared to the June level and the International Monetary Fund (IMF) acknowledged that Pakistan had met all prerequisite conditions for the revival of its extended loan programme of $7 billion.
“The rupee saw a record high recovery as the foreign currency inflow outpaced its outflow,” Finance Minister Miftah Ismail said while speaking at the Pakistan Stock Exchange (PSX) on Friday.
“We did it (supported the rupee) through aggressively slashing imports to $4.9 billion in July compared to $7.7 billion in June,” he said.
“We may still face (import payment) pressure for one or half day (over the next couple of weeks).”
Negative sentiment “has overblown the rupee. But in the end, the fundamentals prevailed, as the rupee has maintained an upward streak these days,” Ismail said.
“We did projections for the rupee and foreign exchange reserves for the next six months when we formed our government (in April 2022),” he said.
However, no one knew how much the rupee would depreciate and how much it would appreciate, he added.
Market forces are the ones that now determine the rupee-dollar parity under the market-based exchange rate mechanism. “The IMF does not allow interventions (supply of dollar by the central bank to the market to artificially support the rupee).”
There was no alternative, but the rupee had to bear the brunt of a large current account deficit (or $2.3 billion) in June, as the foreign exchange reserves kept on shrinking, he said.
Last fiscal year, Pakistan made imports worth $80 billion and exports worth $31 billion. It resulted in a record high trade deficit of $48.3 billion while the current account deficit shot up to the second highest level of $17.40 billion.
“No country can grow and achieve financial stability with this kind of current account deficit,” the finance minister remarked.
“For now, my first priority is to bring imports down. I will not let imports grow for three to four months. I understand the strategy will slow down the economy, but there are no other choices at present.”
Published in The Express Tribune, August 6th, 2022.