KARACHI: A day after Pakistan reached a Staff-Level Agreement (SLA) with the International Monetary Fund, the local currency staged a sharp recovery to Rs280-Rs283 against the US dollar in the open market on Saturday, significantly lower than the official price.

Currency exchange companies kept their airport branches open for travellers where hoarders rushed to get their dollars exchanged for rupees fearing further decline in rates.

Pakistan reached a nine-month Stand-By Arrangement (SBA) with the IMF for $3 billion which is expected to be approved by the Fund’s board in mid of this month. The financial circle believes the agreement provided a great relief to the market and confidence for all stakeholders of the economy.

“Our branches at Karachi, Lahore, Islamabad, Quetta and Peshawar airports are open. We are getting information about the PKR appreciation after the government clinched a deal with the IMF,” said Malik Bostan, Chiarmand Exchange Companies Association of Pakistan.

Sellers’ rush brings dollar prices below interbank level

He said the dollar was traded at Rs280 for buying and Rs283 for selling. Before the Eid holidays, the dollar was traded in the range of Rs289-91 in the open market.

He said the dollar rates fell below the interbank market rates reflecting the immediate impact of the IMF deal but the situation would be much clearer after the opening of banks on Monday. The banks were trading dollars at around Rs286.50 before the closure of the market.

Analysts believe the inflows from both the remittances and export proceeds would increase due to the falling prices of the dollar. Bankers believe that the exporters have kept around $5bn to $6bn in export proceeds abroad. These stuck-up dollars would start coming before it’s too late as prices could tumble after the IMF board accords its approval paving the way for the release of a $1.1bn tranche.

“Even before this SBA announcement, the market had started to price in an IMF bailout with PSX climbing 1,000 points, Eurobonds rolling by 10-15bps and rupee consolidating around the 285.50/$ level (interbank),” said Faisal Mamsa, CEO of Tresmark.

He said China may continue to roll over its debt, friendly countries may surpass its committed loans of $3bn to $5bn and may include more investments and deposits in the overall mix, multilaterals including IDB (which has already committed $1bn), World Bank and others may disburse $3bn over the next six months and almost $2.5bn from pledges of $9bn may materialise over the next 12 months.

There may be a temporary uptick in inflation (due to IMF conditions), but most analysts expect inflation to ease in the coming months.

“Foreign investors showed positive reaction over IMF deal. Pakistan Eurobond is up by 10pc plus in the UK market in the morning trade. Short-duration bonds were rallying. Pak 2024 is now close to 71 cents while Pak 2025 is around 55 cents. These prices are up 70 to 80pc since October 2022,” said Mohammad Sohail, CEO of Topline Securities.

However, some analysts believe that the short-term SBA could bring temporary relief since the agreement could bring pressure on the local currency as restrictions on imports are removed, a free exchange rate regime has been demanded while other conditions could create depression in the economy.

Published in Dawn, July 2nd, 2023