KARACHI: The rupee jumped 2.41% against the dollar in the open market on Monday, straying from a closing record set last week, following a statement by the finance minister over the weekend -end that the improvement in the trade balance in July will reduce pressure on the struggling currency.
Imports fell 35% month-on-month to $5 billion in July. The rupee closed at 242 in the curbside market, ending a two-week losing streak against the dollar. The rupee ended Friday at an all-time low of 248 to the dollar.
Dealers said the local unit was able to post a significant one-day gain following the strength of the Interbank Rupee. It extended its gains for the second consecutive session to end at 238.84 against the greenback in the interbank market. It appreciated 0.22% during the session.
The rupee is struggling with a higher current account, fiscal and trade deficits, and a rapid depletion of foreign exchange reserves. It was beaten as concerns over political uncertainty delaying an IMF bailout for the country rattled markets.
The rupee plunged 14.4% in July, suffering its worst month since 1972. Dealers said the rupee had started to rebound, helped by the matching of demand and supply of dollars in the market. Some relaxation amid political uncertainty, hopes for an early release of International Monetary Fund money, falling imports and soothing remarks from the Ministry of Finance and the central bank on the state of the economy supported the local unit.
“The rupiah gained ground, helped by expectations that Pakistan would be able to secure IMF financing soon after the country’s army chief made contact with the United States to use its influence to do so in order to ward off the economic crisis,” said Zafar Paracha, the secretary. General of Pakistan Association of Exchange Companies.
“The currency rallied after Finance Minister Miftah Ismail said imports fell in July due to the ban on non-essential items, saying the expected improvement in the import bill in the coming months will help ease the pressure on the rupee.”
The rupiah is likely to recover further in the coming days if it was not intentionally devalued or one of the IMF’s prior actions, Parasha added.
A joint statement released by the Ministry of Finance and the State Bank of Pakistan on Sunday said Pakistan’s problems are temporary and being resolved with force.
“Going forward, as the current account deficit is reduced and sentiment improves, we expect the rupee to appreciate. Indeed, that was the experience at the start of the IMF program in 2019, when the rupiah strengthened significantly after a period of weakness in the preparation of the program,” he said.
“The Rupee may temporarily top as it has done recently. However, it moves in both directions over time. We expect this pattern to reassert itself in the coming period. As a result, the Rupee is expected to strengthen in line with improving fundamentals in the form of a lower current account deficit as well as stronger sentiment.