Pakistan's rupee made giant strides against the US dollar on Monday, closing 1.1% higher in the inter-bank market as it factored in the return of former finance minister Ishaq Dar, an advocate of a strong currency.
As per the State Bank of Pakistan (SBP), the rupee closed at 237.02 after appreciating R2.63 or 1.11%.
In the previous week, the rupee had fared relatively better after the US Federal Reserve announced raising the key interest rate with the local currency ending 1.2% lower against the US dollar.
The rupee lost value in four of the five sessions, inching precariously close to its all-time low in the inter-bank market, before finally ending a 15-session losing streak to settle at 239.65 on Friday.
Positive momentum was carried over on Monday, but it was much stronger on the back of the key political development.
Federal Minister for Finance and Revenue Miftah Ismail on Sunday announced he will tender his formal resignation, saying that he had verbally resigned in a party meeting held in London. Senior PML-N leader Dar is reported to replace Miftah as the new finance minister.
Miftah quits; Dar to take over as finance minister
During his tenure, Ismail took a number of unpopular decisions to comply with the International Monetary Fund (IMF) preconditions, including rolling back power and fuel subsidies given by the previous government.
Dar is widely seen as an advocate of a stronger rupee, and his elevation as finance minister tends to make markets bullish on the local currency, say experts.
“The improvement in rupee is mostly sentiment based, as economic fundamentals do not support the recovery,” said Abdullah Umer, an analyst at Ismail Iqbal Securities Limited, told Business Recorder.
The analyst said the dollar continues to gain against other currencies in the international market. “Reports pertaining to rescheduling of loans from international creditors including the Paris Club is driving the positive sentiment as well,” he said.
"However, the economy remains under a shadow, and authorities should take measures to curb the outflow of dollars, especially through smuggling in Afghanistan," Umer added.
Moreover, in another important development, the country’s central bank on Friday in order to further strengthen the regulatory regime for Exchange Companies (ECs) and promote the usage of banking channels, restricted ECs for cash sale transactions of $2000 and above.
As per the SBP’s new directives, ECs are now required to conduct all foreign currency sale transactions of $2,000 or above against PKRs through banking channels.
Meanwhile, internationally, the dollar maintained its strong grip against other currencies. The dollar index - whose basket includes sterling, the euro and the yen - reached 114.58 for the first time since May 2002 before easing to 113.73, 0.52% higher than the end of last week.
Oil prices, a key indicator of currency parity, fell for a second day on Monday on fears of lower fuel demand from an expected global recession sparked by rising worldwide interest rates and as a surging US dollar limits the ability of non-dollar consumers to purchase crude.
Inter-bank market rates for dollar on Monday
BID Rs 235.75
OFFER Rs 236.50
Open-market movement
In the open market, the PKR gained 6.50 rupees for buying and 6.90 rupees for selling against USD, closing at 235.50 and 237.50, respectively.
Against Euro, the PKR gained 6 rupees for buying and 6.05 rupees for selling, closing at 229 and 231.30 respectively.
Against UAE Dirham, the PKR gained 1.90 rupees for buying and 2.05 rupees for selling, closing at 64 and 64.50, respectively.
Against Saudi Riyal, the PKR gained 2.05 rupees for buying and 2.10 rupees for selling, closing at 62.20 and 62.80, respectively.
Open-market rates for dollar on Monday
BID Rs 235.50
OFFER Rs 237.50