The rupee made a strong recovery in the interbank market on Wednesday, rising by Rs9.59 against the dollar — its highest single-day gain ever.

The State Bank of Pakistan (SBP) said the rupee closed at Rs228.80, up 4.19 per cent, compared to yesterday's close of Rs238.38.

According to Arif Habib Limited, it was the rupee's highest single-day gain in absolute terms.

FAP Chairperson Malik Bostan said that the lower import bill for July had helped reduce the country's trade deficit, which in turn had eased the pressure on the rupee.

Business and economy journalist Khurram Husain said the rupee's recovery was due to a sharp drop in import payments after all letters of credit for oil in July were cleared and exporters rushed to close their open positions.

"August likely to see lower oil-related payments with near record stockpiles of petrol & diesel in the country today. Rupee reverting to where it should be after a brief spell of extraordinary pressure in July," he tweeted.

According to Mettis Global, today's remarkable recovery is "primarily attributed to the improved economic fundamentals as the import bill in July 2022 has been reduced to $4.86 billion, down by 38.31 per cent, compared to $7.88bn in the previous month".

Accordingly, the trade deficit for July narrowed to $2.64bn compared to a deficit of $4.96bn in the preceding month, a slump of 46.77pc.

Bostan said part of today's recovery was also based on expectations that the International Monetary Fund (IMF) would release its tranche soon.

"The difference of Rs10 between the rates in the open market and interbank market due to the smuggling of dollars into Afghanistan has been equalised because of tighter security at the border," Bostan said. "The transfer of dollars into Afghanistan has stopped, the effect of which has strengthened the rupee."

"Confidence-boosting comments from the IMF team have improved sentiment, plus a drop in oil prices and higher inventory will impact the current account favourably and are being factored in bringing PKR more in line with its REER value,” said Komal Mansoor, head of research at Tresmark, a web-based terminal for financial markets.

Alpha Beta Core CEO Khurram Schehzad said once funds were received from the IMF, it would unlock multilateral inflows, including from friendly countries.

The inflows, coupled with global and local recession impacting or reducing oil, food and commodity prices, would lead to a much lower import bill, thereby lowering demand for dollar outflows, he said. "This should help improve the PKR against the dollar, at least for some time."

Mettis Global Director Saad bin Naseer said the PKR was stabilising over the bleak demand outlook amid rising inflation as seen in the slump in fuel and cement sales during July.

Referring to the IMF's statement yesterday that Pakistan has completed all prior actions for the seventh and eighth review, he said the clarity on that front and expected inflows were also supporting the local currency.

"However, further strengthening of the US dollar or a flare-up in tensions between US and China over Taiwan could prove as downside risks for the rupee," he added.

Import bill dips

Data released by the Pakistan Bureau of Statistics (PBS) on Tuesday showed the import bill dropped by 12.81 per cent to $4.86 billion in July from $5.57bn over the corresponding month of last year. On a month-on-month basis, the import bill dipped by 38.31pc.

In June alone, the import bill edged up to $7.74bn from $6.28bn over the same month last year, reflecting an increase of 23.26pc.

The import bill had increased 43.45pc to $80.51bn during fiscal 2021-22, up from $56.12bn a year ago.

Pakistan’s trade deficit declined by 18.33pc to $2.64bn in July from $3.23bn over the corresponding month of last year. The month-on-month decline in trade deficit was recorded at 46.76pc.

In FY22, the trade deficit reached an all-time high of $48.66bn from $30.96bn a year ago, indicating an increase of 57pc on the back of higher-than-expected imports.