Against USD: Rupee strengthens in inter-bank market, closes at 199.06

Following the government’s decision to start the removal of subsidies on petroleum products, moving a step closer to revival of the International Monetary Fund (IMF) programme, the rupee continued to strengthen against the US dollar, appreciating 70 paisas by close in the inter-bank market on Monday.

As per the State Bank of Pakistan (SBP), the currency closed at 199.06 after a day-on-day appreciation of 70 paisas or 0.35%. During intra-day trading, the local currency recovered to as high as 198.81 against the US dollar.

Last week, the rupee had ended with a marginal gain of 0.2% on a weekly basis, but not before it had closed at its weakest level in history of 202.01 against the US dollar in the inter-bank market on May 26 (Thursday).

The rupee lost value from Monday through Thursday, plunging to as low as 202.5 in inter-bank trading before posting a recovery.

On Friday, the rupee gained 1.13%, the currency’s first increase against the dollar after 16 successive sessions of depreciation, as the government hiked prices of petroleum products, signalling its intention to revive the IMF programme.

After a 16-session losing streak, rupee gains in spectacular fashion

Last week, the government raised the price of petrol and diesel by Rs30 per litre each to fulfil a key condition of the IMF for the release of the next tranche of $900 million under the stalled $6-billion Extended Fund Facility (EFF).

The hike in prices signalled a clearer economic policy on part of the government that had remained reluctant to remove energy subsidies announced by the previous government led by Pakistan Tehreek-e-Insaf (PTI).

Finance Minister Miftah Ismail acknowledged that the move would contribute to inflation to some extent, but opined that the government had no choice as it had already provided a Rs56-per-litre subsidy on diesel.

"The government's decision to remove subsidy has improved market sentiment," said Malik Bostan, President Forex Association of Pakistan. "This was necessary as the other countries would issue funds to Pakistan after the IMF green signal."

Bostan said that funding to the tune of $28 billion would be activated including $8 billion from Saudi Arabia, $8 billion from China and the remaining from other multilateral institutions.

"However, there is a need to control the trade deficit, and a strategy should be put in place to boost exports, otherwise things will remain the same," said Bostan.

SBP's reserves fall another $75mn, now stand at $10.09bn

Economic experts have pointed out that the resumption of the IMF programme is crucial for the cash-strapped South Asian country, as the Fund’s approval would open doors of funding from other multilateral institutions and allied partners at a time when foreign exchange reserves have dropped to a critical level.

Inter-bank market rates for dollar on Monday

BID Rs 198.80

OFFER Rs 199

Open-market movement

In the open market, the PKR gained 1.50 rupees for buying and 1.60 rupees for selling against USD, closing at 197.50 and 199.40, respectively.

Against Euro, the PKR gained 3 rupees for both buying and selling, closing at 210 and 212, respectively.

Against UAE Dirham, the PKR gained 40 paisas for both buying and selling, closing at 53.80 and 54.30, respectively.

Against Saudi Riyal, the PKR gained 30 paisas for both buying and selling, closing at 52.20 and 52.70, respectively.

Open-market rates for dollar on Monday

BID Rs 197.50

OFFER Rs 199.40