KARACHI: The Pakistani rupee is set to maintain its upward trajectory against the US dollar as export earnings and remittances surge following government actions against speculative activities, according to a local news agency report on Sunday.
At the start of the week, the rupee closed at 301.16/dollar but strengthened to finish at 296.85 by the end of the week. Over the course of five sessions this week, the currency appreciated by 1.43%, equivalent to Rs4.31, as demand for dollars in the unofficial market declined.
Tresmark, a financial technology company, noted on Saturday that "liquidity has improved in the forex market as exporters have been actively selling in both spot and forward markets, bolstered by increased daily remittances. This trend is expected to contribute to a gradual strengthening of the rupee."
The current account deficit, reflecting the gap between foreign exchange inflows and outflows, decreased by 79% month-on-month to $160 million in August, driven by improvements in trade, services, primary, and secondary income.
Regulatory measures to combat illegal activities in the foreign exchange market have begun yielding results, narrowing the gap between interbank and open market exchange rates and boosting remittances.
Since crackdowns on black market operators began on September 6, traders report that tens of millions of dollars have returned to Pakistan's interbank and open markets.
The rupee, which reached a record low on September 5, has appreciated by over 10% from pre-crackdown levels, trading at less than $300/dollar last week.
However, the rupee faced some pressure due to the lifting of import restrictions, leading to increased foreign currency demand. In August, it depreciated against the dollar by nearly 6%.
Topline Securities, a brokerage firm, stated, "In the last 30 years, the rupee has depreciated by an average of 7% per year against the US dollar, but the last 6 years have seen an average annual depreciation of 15%."
Tresmark suggested that the State Bank of Pakistan's decision to maintain the policy rate at 22% indicates that the current economic issues are not demand-driven but stem from supply-side problems, fiscal mismanagement, and speculative trends.
Increasing interest rates would not stimulate demand (already low) and would not unlock supply, as hoarders, speculative buyers, and those with unaccounted funds typically keep their assets in current accounts or as cash.
However, Tresmark cautioned that the reversal in commodity prices has been slower than desired and that the Afghanistan border remains porous, with ongoing activities.
Expectations include higher import volumes (required to stabilize supply) to keep the rupee's parity in check. Consequently, rates may not drop below 285/$ (July-end levels) and are likely to consolidate in the 290-295 range.
