January 26, 2024 (MLN): The Pakistani rupee (PKR) continued its upward spree this week and gained a marginal 30 paisa to settle at PKR 279.59, as compared to the previous week's closing of PKR 279.9 per USD.

In today's session, the local unit gained 7.5 paisa and witnessed an intraday high (bid) of 280.25 and a low (ask) of 279.75.

In the open market, exchange companies quoted the dollar at 279.07 for buying and 281.17 for selling.

In a noteworthy development, the country received the second installment of SDR 528 million, equivalent to $705.6m from the International Monetary Fund (IMF) last week.

The first review report under the Standby Arrangement published by the fund addresses the importance of allowing the exchange rate to be determined by the market, emphasizing the need for a gradual deepening of the foreign exchange (FX) market.

The Staff emphasized that deepening FX market liquidity should result in a rebound in trading volumes to levels seen some months ago and could only occur if banks are encouraged to manage FX flows via the interbank market, offering exchange rates to ensure FX flows into the system when needed.

To ensure that the exchange rate can act as a shock absorber, the IMF highlighted that the government must refrain from formal or informal restrictions.

The IMF Staff and the authorities agreed that SBP's interventions in the FX market should remain guided by the objective of building FX buffers, with sales not to be used to prevent trend depreciation of the rupee driven by fundamentals.

Meanwhile, the government agreed to redouble efforts to eliminate the existing exchange restrictions and multiple currency practices in early 2024.

The SBP's planned reforms of the EC sector could improve oversight, governance, and transparency, but further efforts to monitor the pricing in the informal exchange rate markets would helpfully identify periods of market dysfunction.

The government reaffirmed its commitment to the FX market by finalizing preparations for transitioning to a new trading platform for spot transactions connecting all banks. This system is scheduled to go live by end-January 2024.

Moreover, the government pledged to undertake a feasibility study to conduct FX purchases and sales via auctions, including the publication of auction results, by the end of March 2024.

In pursuit of its mandate to implement an exchange rate policy, SBP is developing a framework to monitor pricing and broader developments in informal markets and publish a report with findings by end-March 2024.

As limited reserve buffers continue to be the main constraint for durably entrenching external stability, SBP’s interventions in the FX market will remain guided by the objective of building FX buffers, with FX sales limited to episodes of disorderly market conditions and not used to prevent a trend depreciation of the rupee driven by fundamentals.

In comparison to major currencies, PKR gained 2.01 rupees against the Euro, closing at 302.46 compared to the previous value of 304.48.

The British Pound became cheaper by 1.2 rupees closing at 354.62 compared to 355.82 from a day ago.

The Swiss franc saw losses of 1.39 rupees, closing at 322.3 compared to 323.69 from the previous session.

Against the Japanese Yen, PKR gained 0.1 paisa, closing at 1.8915 versus 1.8925 a day ago.

The Chinese Yuan lost 8.43 paisa, closing at 38.94 against 39.03 from the previous session.

The Saudi Riyal closed at 74.56 with a loss of 2 paisa from its value of 74.58 a day ago.

The U.A.E Dirham decreased in value by 2.04 paisa from 76.12 a day ago to 76.14.

During the current financial year, PKR has appreciated against the Dollar by 6.4 rupees or 2.29%. While the current calendar year has seen PKR appreciate by 2.27 rupees or 0.81%.

In the Money Market, the benchmark 6-month Karachi Interbank Bid and Offer rates inched up by 5 bps to 20.42% and 20.67%, rebounding after reaching their lowest level since March 02, 2023, yesterday.

The persistent drop in yields is attributed to market participants' expectations that interest rates have peaked and are expected to fall in the coming months.

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Posted on: 2024-01-26T15:35:50+05:00