Pakistani Rupee holds its breath against USD for another month

June 02, 2024 (MLN): Pakistan's currency, though not registering any gains, has successfully managed to maintain stability against the mighty Dollar for another month in light of stable economic operations.

The Rupee settled May at 278.33 per USD, reflecting a meager 1 paisa drop compared to the previous month's closing rate of 278.31 per USD.

The average exchange rate during this month stood at 278.27, compared to the average of 278.19 in the previous month and 286.04 per USD in the same month last year, reflecting a period of stability and improvement.

The successful conclusion of the 9-month SBA with the International Monetary Fund (IMF) proved to be the primary catalyst for the persistent strengthening journey of the Pak Rupee as it provided a policy anchor to eliminate FX shortages by returning to proper FX market functioning.

The program aided in necessary fiscal adjustment and maintenance of debt sustainability, protected critical social spending, buffered external shocks, eliminated FX shortages, and made progress on disinflation and structural reforms. 

Additionally, it helped the country secure $3 billion for its depleting foreign exchange reserves and boosted the confidence of other countries and investors, encouraging them to invest in the nation.

As a result, the central bank's reserves reached $9.09 billion by the week ending on May 24, 2024, close to Pakistan's total reserves position of $9.53bn as of May 2023.

The back-to-back visits from Saudi Arabia for investment talks are a major indicator of the increased focus of countries on investing in and supporting Pakistan.

It is crucial to mention that the South Asian nation is seeking a new long-term and larger IMF loan to plug its external financing gaps, which could be a major influencer on the currency in the near future.

On the external front, the central bank released key economic indicators that further drove attention to the improved position of the domestic currency with consecutive current account surpluses and higher foreign investment.

Pak Rupee's Real Effective Exchange Rate Index (REER) also maintained its upward trajectory, reaching a provisional value of 104.51 in April 2024.

Progress was also noted in developing various exchange companies of listed banks, as most of them received operational licenses from the central bank.

Moreover, the local unit remained shielded from the commodity prices in the international market as oil prices dropped massively this month, leading to reduced external dollar payments and lowered petroleum prices in the country.

Pak Rupee received further support as the U.S. Dollar Index (DXY), which tracks the greenback's value against six other top currencies fell 1.58% in May amid strengthened hopes for rate cuts that drove the U.S. treasury yields lower.

However, the third portion of the month experienced a slight negative trend as the local currency mainly traded in the red zone against the USD.

IMF flagged that the recent rupee stability should not lead to renewed expectations that this will persist in the future as policy slippages, together with lower external financing, could undermine the narrow path to debt sustainability and pressure the exchange rate.

Furthermore, a potential resurgence in Pakistan's social tensions, reflecting the complex political scene and high cost of living could weigh on policy and reform implementation.

Compared to major currencies, PKR lost 3.27 rupees against the Euro, closing at 301.23 compared to the previous month's value of 297.96.

The British Pound became expensive by 4.64 rupees closing at 353.63 compared to 348.99 a month ago.

The Swiss franc saw losses of 2.71 rupees, closing at 307.58 compared to 304.87 from April's closing.

Against the Japanese Yen, PKR gained 0.38 paisa, closing at 1.771 versus 1.775 a month ago.

Meanwhile, PKR remained flat against the Chinese Yuan, Saudi Riyal and U.A.E Dirham.

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