Pakistani currency closed stable at a three-month high above Rs279.50 against the US dollar in the inter-bank market on Thursday as the central bank’s foreign exchange reserves hit over six-month high at $8.27 billion.
The State Bank of Pakistan (SBP) reported that its foreign exchange reserves increased by a net 3%, or $243 million, in the week ended January 19, 2024.
In its latest weekly update, the central bank said the reserves rose in the wake of latest inflows – including the second tranche of $705.6 million received from the International Monetary Fund (IMF) under its ongoing loan programme of $3 billion – and despite outflows on account of foreign debt repayment.
Taking to social media platform X, Arif Habib Limited CEO Shahid Ali Habib said “the heightened reserves level has played a crucial role in maintaining the stability of the Pakistani rupee against the US dollar in recent times.” The current reserves level had last been seen in mid-July 2023, he added.
Caretaker Finance Minister Dr Shamshad Akhtar said over the weekend the reserves had soared to $9.1 billion after the receipt of the IMF’s latest tranche in the week under review.
The reserves dropped to the latest level of $8.27 billion probably in the wake of foreign debt repayment.
Last week, the IMF revised up its projection for Pakistan’s foreign exchange reserves to $9.1 billion by the end of current fiscal year in June 2024 compared to its July forecast of $8.9 billion by the end of FY24.
The upward revision suggests the reserves will maintain their gradual growth momentum in future.
Topline Research looked more optimistic than the IMF, saying the reserves could soar to around $10 billion by the end of the current fiscal year.
The foreign currency reserves will increase to the projected level with the help of inflows coming from multilateral and bilateral creditors and relatively higher export earnings and workers’ remittances.
The SBP added that the reserves held by commercial banks decreased $46.8 million to $5.07 billion in the week ended January 19. Accordingly, total liquid foreign currency reserves held by the country reached $13.34 billion.
Read Rupee rises for sixth day in a row
According to the central bank data, the rupee closed unchanged at Rs279.76 against the greenback on a day-on-day basis on Thursday.
The currency has cumulatively gained 9.80%, or Rs27.43, in the past four and a half months compared to the all-time low of Rs307.10/$ hit in the first week of September 2023.
Exchange Companies Association of Pakistan (ECAP), however, reported that the currency ticked down 0.02%, or Rs0.08, closing at Rs280.94/$ in the open market.
The difference between exchange rates in the two currency markets remained under control despite the latest nominal drop in the retail market. The spread stood at 0.42% (or Rs1.18), which was significantly below the ceiling of 1.25% (around Rs4 at current level) recommended by the IMF.
Treasury firm Tresmark said the other day the rupee would remain stable around current levels in the short run.
A section of financial experts agreed with the company’s view, projecting that the rupee-dollar parity would stay at current levels ahead of general elections slated for February 8, 2024.
The future direction of the currency will depend on the election process, outcome of polls, whether the next political government continues to implement the economic reforms and what strategy it takes to improve the external economy.
Analysts say the rupee has remained stable amid managed imports valuing at $4 billion a month and relatively better export earnings and improved workers’ remittances.
The government’s strategy to limit import payments equal to the sum of export earnings and workers’ remittances has helped achieve six-month high current account surplus of $397 million in December 2023.
