KARACHI: The rupee made massive gains on Friday, skyrocketing 1.9 per cent against the US dollar in the interbank market — a development that was largely attributed to the Supreme Court’s ruling to restore the National Assembly and the central bank’s decision to increase the policy rate by 2.5pc a day earlier.

According to data released by the State Bank, the rupee closed at 184.68 to the dollar on Friday, recovering from the previous day’s close of 188.18.

Market experts and currency dealers beli­eve that the Supreme Court’s decision has eroded the uncertainty that kept the speculative market under grip for a long time. However, they say the exchange rate remains vulnerable to many factors, including weak foreign exchange reserves and the economic policies set by the new government.

“We believe a key sentiment driver for the market will be immediate policy formation by the new government,” said Tahir Abbas, head of research at Arif Habib Ltd. “Primary focus should be on exports and stability in the external position.”

“The currency should be allowed to remain at its market-determined level and take any pressure from the external account. Since January to date, the rupee has depreciated by 6.2pc,” he said.

He said initiatives for overseas Pakistanis, such as Roshan Digital Accounts (RDA), should be prioritised, as inflows through them reached $3.9 billion as of March, and proper channel flows for remittances should be maintained to keep foreign reserves afloat.

However, some currency dealers believe that a free-floating exchange rate is not working efficiently, as the dollar has gained over 16 per cent against the rupee during the ongoing fiscal year.

Analysts believe that an immediate task that needs to be taken up is foreign exchange reserve management, and for that, the government’s primary focus should be on negotiations with the International Monetary Fund.

“It’s likely that the recent subsidy on fuel and power along with amnesty for industries may have to be reconsidered. Additionally, the robust revenue drive should remain on track,” said Mr Abbas of Arif Habib Ltd.

Atif Ahmed, a currency dealer in the inter­bank market, said the demand for dollars was still high while the importers found it difficult to manage dollars in their accounts for imports.

Against this backdrop, the country’s import bill jumped nearly 50pc during the first eight months (July to February) of the current fiscal year.

Mr Ahmed believed the demand for dollars would continue to go up if imports remained high.

“Market believes the central bank is proactive in managing volatility,” said Komal Mansoor, head of research at Tresmark. “A timely and amplified rate hike has put speculative forces on the backfoot. Falling reserves and huge current account deficit are still an enormous challenge, but the local currency needs stability to bring calm for inflation and control panic.”

“We believe the import restricting policies will also continue in the new government as imports are rising at a rapid pace,” said Umair Naseer of Topline Research. “The SBP has already initiated the process by increasing the list of items that is subject to 100pc cash margin requirement to control inflation.”

The 100pc cash margin means the importers will have to deposit the entire amount in dollars to open letters of credit.

“It will also be interesting to see if the current SBP governor continues [to hold the job] or not. There is a general perception that the current governor has good terms with the IMF,” he said.

Analysts believe that the coming few days are more crucial for the exchange rate since the State Bank has been losing foreign excha­nge reserves while the import bill is still on the higher side, mainly due to oil prices plus commodity prices on the international market.

Published in Dawn, April 9th, 2022

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Smog hazard
Updated 05 Nov, 2024

Smog hazard

The catastrophe unfolding in Lahore is a product of authorities’ repeated failure to recognise environmental impact of rapid urbanisation.
Monetary policy
05 Nov, 2024

Monetary policy

IN an aggressive move, the State Bank on Monday reduced its key policy rate by a hefty 250bps to 15pc. This is the...
Cultural power
05 Nov, 2024

Cultural power

AS vital modes of communication, art and culture have the power to overcome social and international barriers....
Disregarding CCI
Updated 04 Nov, 2024

Disregarding CCI

The failure to regularly convene CCI meetings means that the process of democratic decision-making is falling apart.
Defeating TB
04 Nov, 2024

Defeating TB

CONSIDERING the fact that Pakistan has the fifth highest burden of tuberculosis in the world as per the World Health...
Ceasefire charade
Updated 04 Nov, 2024

Ceasefire charade

The US talks of peace, while simultaneously arming and funding their Israeli allies, are doomed to fail, and are little more than a charade.