The rupee made a significant recovery on Friday as the dollar fell by Rs3.3 to close at Rs163.58 in the interbank market.

In percentage terms, this represented a 1.9 per cent decline in the greenback compared to today's opening rate of Rs166.88.

The currency market witnessed quite a bit of volatility as the dollar hit an intraday high of Rs167, before hitting its low of Rs163.25 and finally closing at Rs163.58.

Gains made by the rupee are being attributed to the $1.386 billion disbursement to Pakistan by the International Monetary Fund (IMF).

The money was released by the IMF under the Rapid Financing Instrument to help the country address the economic fallout from Covid-19.

The IMF support will help provide a backstop against the decline in international reserves and provide financing to the budget for targeted and temporary spending increases aimed at containing the pandemic and mitigating its economic impact.

“The increase in rupee was primarily due to the decision of the IMF, including the $1.386bn financing, plus the debt relief offered by G-20 until the end of 2020 to developing nations, including Pakistan, helped boost sentiments in the market,” said former general secretary of the Exchange Companies Association of Pakistan, Zafar Paracha.

According to analyst Eman Khan, from Tresmark, traders were looking for some comfort against fast depleting reserves.

"The IMF's commitment did just that. Pakistan’s credit default swaps also improved in the international markets from 750 basis points to 670 bps today, which was trading at 350 bps in February.

"A timely rate cut has also bolstered confidence that the central bank is living to the current situation," she said.

A day earlier, the State Bank of Pakistan had announced a sharp cut of two percentage points in the key policy rate after an emergency meeting of the Monetary Policy Committee.

The move took the policy rate down to 9pc, back in single digit territory for the first time since 2018.

Since April 7, the dollar has lost Rs4.39 from its peak of Rs167.89.