Rupee gains against dollar in open market
On the other hand, the local currency remained stable in the interbank market.
KARACHI (Dunya News) – The Pakistani rupee gained strength by 20 paisa against the U.S. dollar in the open market, and hit Rs154.90 in the early trading hours on Wednesday.
On the other hand, the local currency remained stable in the interbank market against the greenback with trading at Rs154.83, according to updates available with the media.
The imminent signing of the Phase One trade deal between the U.S. and China later this week has further supported market sentiment to head the trading in a particular direction.
Easing fears of conflict in the Middle East, despite ongoing tensions between the U.S. and Iran, have also supported investors’ sentiments, but hardly contributed to the emerging market currency movement.
The apparent change in the rate between the dollar and the rupee has been due to the falling demand for the greenback owing to the decline in imports, whereas the increase in dollar from lending agencies and foreign investment in the government papers helped stabilise rupee-dollar parity.
Currency dealers foresee rupee to rise further in coming months in the wake of higher inflows of dollars and increased attraction of local currency.
The dollar dominated the country’s trade in 2019 appreciated by 11.5 percent. The greenback had traded at Rs139 in the interbank on Dec 31, 2018, as compared to Rs154.94 on Dec 31, 2019; thus showing a devaluation of almost Rs16 per dollar or 11.5 percent.
Against Euro, the rupee observed similar trend and declined by 8.76 percent, as it was sold at Rs159.80 on Dec 31, 2018 and depreciated to Rs173.80 on Dec 31, 2019, a year later. The rupee lost Rs14 per euro in 2019.
Earlier, Pakistan’s foreign exchange reserves rose to more than $17.29 billion as the State Bank of Pakistan (SBP) received $1.3 billion from the Asian Development Bank (ADB). The central bank’s reserves expanded to $10.41 billion, whereas the reserves of commercial banks were $6.88 billion. In the current financial year, foreign exchange reserves increased by $3.10 billion.
Financial experts are of the view that despite the country’s foreign exchange have swelled, but that still does not meet the standards of the International Monetary Fund (IMF), which considers that the reserves of any country should be equal to imports for at least three months.
Currency dealers were of the opinion that the gradual appreciation of rupee helped stabilise exchange rate which remained range bound in the Rs155-156 bracket for the last few months.
Importantly, Moody’s Investors Service ("Moody’s") had affirmed Pakistan’s local and foreign currency long-term issuer and senior unsecured debt ratings at B3 and changed the outlook to stable from negative.
According to a report which was issued by the bond credit rating business of Moody’s Corporation, “the change in outlook to stable is driven by Moody’s expectations that the balance of payments dynamics will continue to improve, supported by policy adjustments and currency flexibility.”
Moody’s had expected Pakistan’s current account deficit (CAD) to continue narrowing in the current and next fiscal year (ending June of each year), averaging around 2.2% of GDP, from more than 6% in fiscal 2018 (the year ending June 2018) and around 5% in fiscal 2019.
Moody’s had expected policy enhancements, including strengthened central bank independence and the commitment to currency flexibility, to support the reduction in external vulnerability risks.
The IMF programme, which commenced in July 2019, targets higher foreign exchange reserve levels and has unlocked significant external funding from multilateral partners including the Asian Development Bank and the World Bank.
