KARACHI: The Pakistani rupee in the early trade hours on Wednesday regained its strength by 5 paisa, and hit Rs155.85 and Rs155.95 against the U.S. dollar in the interbank and open markets, respectively.
On Friday, the local currency closed at Rs155.90 against the greenback on a positive note. In the open market, the rupee appreciated by 20 paisa and closed at Rs156.10 against the dollar with slight fluctuation in the whole week.
On Sunday, the World Bank forecasted Pakistan’s economic growth to slow down for the next two years as it faces yet another macroeconomic crisis due to massive twin deficits and low foreign reserves.
Despite significant devaluation, the WB still sees the rupee overvalued by the end of September by approximately 4.8%.
In the last two months, the local currency was observed to significantly recover against the greenback in both interbank and open markets.
Earlier, analysts had expressed fear that the intense ongoing trade war between the United States and China would result in fluctuation of the U.S. dollar in the local market, and the value of the Pakistani rupee would stabilise depending on the measures taken by the government with appropriate economic policies.
Currency traders were of the view that the increasing inflows of remittance have supported the local rupee in the market.
Previously, the rupee was observed to cumulatively depreciate against the greenback, which in turn, had resulted in increased prices of goods and hardships for the general public.
The SBP has let the rupee depreciate significantly in the inter-bank market after finalising an agreement with the International Monetary Fund (IMF) for a loan programme on May 12.
The IMF asked Pakistan to end state control of the rupee and let the currency move freely to find its equilibrium against the US dollar.
On the other hand, the World Bank Group has also supported the idea of leaving the rupee free from state control in an attempt to give much-needed boost to exports and fix a faltering economy.
After the International Monetary Fund (IMF) lent the first tranche of $991.4 million to Pakistan, the local currency had depreciated massively.
The stringent conditions – on which the global moneylender has formally approved the bailout package of $6 billion for Pakistan – seemed to have exerted more pressure on the local currency.
The gradual drop in the rupee had come due to high demand for the dollar against thin supply as the country continued to make aggressive international payments to partially pay off huge foreign debt and for imports.
Economists were of the view that effective measures must be implemented on the priority basis to recover the state from the balance of payment deficit.
Besides increased demand of the greenback in the local market, they had termed ‘balance of payments deficit’ as the main reason in the recent hike in the value of the US dollar.
Moreover, they had considered that state’s exports and investment were required to grow significantly, and the imports must be reduced to remove pressure on the local currency.
According to experts, the government must ensure implementations on economic policies after the deal with the IMF.
PSX observes bullish trend
On the other hand, the Pakistan Stock Exchange (PSX) witnessed an upward trend on Wednesday with the benchmark KSE-100 index gaining 234 points and hitting 33,433 points.
In the previous week, the PSX remained lacklustre as investor participation was comparatively low amid lack of market moving triggers and investors in a state of uncertainty following the formal announcement of the Financial Action Task Force (FATF) to keep Pakistan in the grey list till Feb 2020. The benchmark KSE-100 index lost 605 points or 1.8 per cent, and settled at 33,870 points on Friday.
The volume had declined 17pc to 115 million shares, from 137.9m while traded value on the contrary had increased by 30pc to $31.3m.
According to stock market analysts, simmering Pak-India tensions and the current uncertain political situation in the country, and FATF’s warning to Pakistan to fully comply with its recommendations to curb terror financing and money laundering – all had contributed to the bearish trend in the market.
The Paris-based watchdog mentioned that Pakistan had largely addressed five of the 27 action items but expressed serious concerns with the overall lack of progress. It cautioned the country to swiftly complete its full action plan by February 2020 to stave off the blacklist.
On Oct 15, IMF Deputy Director in the Research Department Gian Maria Milesi-Ferrtti affirmed that Pakistan has remained steadfast on fiscal adjustment and has picked up economic stability as a result.
He said there were good signals on the confidence front that the exchange rate was more realistically showing the economic conditions. He added that investors were gaining confidence.
He outlined that Pakistan’s tax revenue has been increasing despite of several challenges to the state’s economy.
Earlier, economists were of the view that since the passage of the financial budget for the fiscal year 2019-20, the stringent policies would reflect themselves in what they termed “the downfall of the stock market.”