KARACHI:
Speculators lost money when the IMF’s new loan plan supported the Pakistani rupee. On Tuesday, the inter-bank rupee rose 3.83%, or Rs10.55, to Rs275.44 against the US dollar, a four-month high.
The open market currency rose 3.57%, or Rs10, to Rs280 against the dollar. Despite the market being closed, the closing price was much lower than Finance Minister Ishaq Dar’s claim of Rs270-272 against the dollar in the retail market a day earlier.
After Pakistan and the IMF signed a staff-level agreement (SLA) for a $3 billion nine-month loan programme, Pakistan’s global Eurobond rallied for the third day in a row, while gold prices fell.
After the one-week Eid holidays, weekly offs, and annual offs, the inter-bank and open markets opened on Tuesday. The fiscal year 2024 began with this session. Pakistan received IMF aid during the holidays.
Experts expect the first tranche of the IMF loan, expected to be approximately $1-1.25 billion, to be received this month (July 2023), along with $3-5 billion from other multilateral creditors and friendly countries over the next 12 months. These inflows will boost foreign exchange reserves to $9 billion and the rupee against the dollar.
Despite increasing by almost $500 million and rising beyond $4 billion, the reserves are still critically low, covering only one month of imports.
Experts predict a two-week rebound to Rs270-275/$. As declared by the central bank, all imports would be reopened, increasing foreign currency demand and pressuring the local currency.
In the previous fiscal year 2023, which concluded on June 27, 2023, the currency dropped 28% (Rs81) to Rs286 versus the dollar.
Due to delays in reviving the $7 billion IMF programme, which terminated prematurely on June 30, 2023, FY23 fell.
The administration addressed IMF currency market concerns before signing the new IMF contract. Last week, the central bank reopened all imports, completing another programme condition, and modified the FY24 budget to meet Fund recommendations.
Arif Habib Limited (AHL) said that the domestic currency in the inter-bank market gained 3.83%, or Rs10.55, in a single day, the highest increase in seven weeks. May 12, 2023 saw a 4.86% gain.
ECAP President Malik Bostan said, “The speculators have lost the game. Speculators devalued the Pakistani rupee, but it recovered.” If workers’ remittances, export earnings, foreign portfolio investment in local capital markets, and foreign direct investment (FDI) in various domestic sectors remain high, Bostan expects the currency to recover to Rs250/$ soon.
Bostan added that China will invest billions in Pakistan’s second batch of CPEC projects.
He said the local currency’s actual effective exchange rate (REER) against a basket of global trading partner currencies is still distant from Rs245/$ on the global grid. The rupee was undervalued at 87.14 on the REER index and Rs285.46/$ on May 31, 2023.
The REER index values the rupee against the dollar at 295–105.
The central bank maintained the REER at 95 on the index between 2019 and 2023, suggesting that the currency might recover to Rs245-250/$ if foreign currency supply matches or exceeds demand.
Political drama and law and order led to a record low of Rs299/$ in May 2023.
Pakistani Eurobonds rallied for a third day. On Tuesday, the $1 billion 10-year global bond expiring in April 2024 hit a one-year high. This rise shows that FY24’s July–March default risk has decreased.
Topline Securities CEO Mohammad Sohail tweeted that Pakistan’s 2024 Eurobond touched a one-year high of 80 cents.
Before the IMF settlement last week, the bond price dropped to $51.5 cents due to the substantial danger of foreign debt default.
Pakistani gold prices fell Rs2,200 to Rs205,000 per tola (11.66 grammes). Gold peaked at Rs240,000 in May.
