The rupee has regained about two per cent of its lost value in two weeks, after hitting a historic low of Rs108.57 against the greenback on December 4.

In the week ended December 13, inflows of $505 million from the UK’s Department for International Development, Islamic Development Bank and other multilateral institutions has to be credited, in large part, for the swift comeback of the rupee.

This inflow also boosted the SBP’s forex reserves to about $3.468 billion, from $2.963 billion a week earlier. Pakistan’s overall forex reserves climbed to $8.526 billion from $8.060 billion, according to recently released SBP statistics.

Senior bankers and executives of forex companies say the rupee’s rapid recovery also reflects a drop in dollar demand after checks on capital flights and crackdown on the Hundi/Hawala business. They say that Finance Minister Ishaq Dar’s much-publicised prediction about the rupee’s recovery also accelerated dollar-dumping by speculators, thus improving its supply.

Sources close to the SBP say increased inflow of foreign exchange enabled the central bank to purchase around $300 million from some banks, including United Bank, Habib Bank and the state-run National Bank of Pakistan. Executives of the exchange companies claim they have also sold a slightly lesser amount of dollars to the SBP, but central bankers didn’t confirm this.

Bankers anticipate that an inflow of over $500 million from the IMF, out of the $6.7 billion loan, by today would further perk up the rupee, which has lost seven per cent against the dollar since July.

Coalition Support Fund (CSF) releases from the US and foreign exchange from international financial institutions (IFIs), including the International Finance Corporation (IFC), expected within weeks, could take the rupee to new heights, according to finance ministry officials.

The IFC — a lender to the private sector — would likely provide forex support to Pakistan through a specialised lending programme that is being discussed with a commercial bank here, a senior banker in the loop told Dawn.

A forex debt deal is also in the making, whereby the government would borrow more than half a billion dollars from banks. Bankers say government officials and banks are currently working out details of mutually acceptable interest rates. In short, the rupee is going to remain stable at least in the second half of this fiscal year. Or so it appears.

Optimistic policymakers and bankers also cite an anticipated upswing in textile exports after the grant of GSP Plus status to Pakistan, and prospects of faster growth in remittances after stricter checks on Hundi/Hawala, as some other key factors that should keep the rupee in shape.

Some of them, however, opine that much depends on the timing of the actual release of forex funds committed by any country or IFI. In each quarter, the country needs $1.5-$2 billion for external debt payments and repatriation of profits and dividends of multinational companies abroad. Besides, our quarterly trade deficit is increasing, and remittances fall short of filling in this gap.

Foreign direct investment is growing, but volumes are low. Lower still are the volumes of foreign portfolio inflows, despite a decent growth rate. Forex reserves with the SBP are not enough for the central bank to be able to frequently sell dollars to banks if the rupee begins to fall again. These things demand that inflows come in time and in big volumes.

“Low-level and infrequent inflows won’t help [in maintaining exchange rate stability],” says the president of a foreign bank.

“But even if financial commitments of IFIs take time to materialise, CSF flows would be coming in on time, for I know that recent contacts between senior US and Pakistani officials have cleared the way for it,” insists an official of the finance ministry. “Besides, GSP Plus-triggered growth in exports and realisation of huge overdue export proceeds after the recent rupee-rise make the exchange rate outlook stable.”

In a way, the outlook has already improved much, as is evident from forward dollar rates that banks are quoting now. On December 19, when the dollar closed at Rs106.40 on ready counters, the three-month forward price settled at Rs107.63. Just two weeks ago, the then three-month forward rate was Rs109.26.

Finance Minister Ishaq Dar says the Pakistan Remittances Initiative has also become pro-active in pushing banks and forex companies to generate larger amounts of remittances via official channels.

On the other hand, the SBP and the Federal Investigation Agency (FIA) have contained capital flight to some extent, besides checking inward remittances from expatriate Pakistanis through illegal means. Senior officials of forex companies say the SBP-FIA joint drive is becoming more serious.

“Sleuths of a premier intelligence agency are reportedly helping the SBP and the FIA in uncovering cases of capital flight,” the head of a Karachi-based forex company told this writer. He cited the recent suspension of the license of a B-category forex company as a case in point.