The Pakistani rupee demonstrated a significant rebound against the US dollar, appreciating by 5.5% or Rs16 to a weekly peak of Rs295 in the open market by midday. The Exchange Companies Association of Pakistan (ECAP) reported that the currency closed at Rs311 against the US dollar on Wednesday.
As a result, the difference in the rupee-dollar exchange rate between the interbank and open markets has decreased to approximately Rs10, down from nearly Rs27 the previous day. Over the last few weeks, the Pakistani currency has been steady around Rs285/$ in the interbank market.
In response to the growing disparity in the rupee’s value between the two markets, the International Monetary Fund (IMF) has advised the government to concentrate on restoring the proper functioning of the foreign exchange market.
A significant adjustment in the open market was facilitated by the central bank’s decision to allow commercial banks to procure US dollars from the interbank market for settling international payments made via credit cards by their clients. Prior to this, banks were purchasing an average of $10 million daily from the interbank market for the same purpose.
This demand from commercial banks had led the rupee to plunge to an all-time low of Rs312/$ in the open market on Tuesday.
Zafar Parachs, General Secretary of ECAP, had foreseen a substantial correction in the rupee-dollar ratio in the market following the central bank’s decision. He predicted a recovery of around Rs20-25 over the next few days, including an improvement of Rs15-20 on Thursday.
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Previously, financial analysts expected another 5-10% depreciation of the rupee to Rs300-310/$ in the interbank market in an attempt to minimize the disparity between the interbank and open markets, especially before the expiry of the IMF loan programme on June 30, 2023.
Despite the day’s gains, the rupee continues to face pressure due to dwindling foreign exchange reserves, which have reached a critically low level of $4.2 billion. Additionally, Pakistan has a foreign debt repayment of $3.7 billion due in June. These factors have raised concerns about the country’s risk of default on international payments post-June 2023, if the IMF programme remains suspended.
