KARACHI: The upward streak of dollar has ended after almost a month period and the domestic currency recorded a sharp recovery which was termed as the best single day gain in the last two years where greenback was shocked by almost Rs 3.49 or 1.9%, closing below Rs 185 level.
The rupee on Friday closed at 184.69 rupees, falling by Rs 3.49 or 1.9 percent, from the Wednesday’s closing of Rs 188.18, which was historic high mark.
In open market, dollar was down by Rs 2 to Rs 188.50 level.
Earlier, the rupee received heavy beating and lost over Rs 10 against the dollar in a month. Dollar touched the highest level of Rs 189 at interbank and Rs 190.50 at open market. In some of the cities in the country, dollar at open market was quoted around Rs 193 to Rs 195 which was a biggest jolt for the country’s financial markets.
However, following the decision of the Supreme Court which signaled ending of uncertainty at political horizon, rupee recovered and dollar was on the back foot after a month-long upward journey on Friday.
Rupee, during the current fiscal year till April 7, had weakened by almost Rs 30.44 to a dollar. Since the arrival of the incumbent government, the PKR lost nearly Rs 64 to a dollar.
Besides clearing of the mist over the political horizon, the quick steps taken by the State Bank of Pakistan on Thursday also help cool down the rally at the foreign currency market. SBP raised the interest rate by 2.50 percent to 12.25 percent whereas Export Finance Rate was also jacked up by same proportion reaching at 5.50 percent.
The decision was announced through an emergency meeting of Monetary Policy Committee (MPC). The Committee believed that – since the last meeting – the outlook for inflation has deteriorated and risks to external stability have risen, therefore, these developments necessitated a strong and proactive policy response.
The SBP said that the average inflation forecasts have been revised upwards to slightly above 11% in FY22 before moderating in FY23.
Heightened domestic political uncertainty contributed to a 5 percent depreciation in the rupee and a sharp rise in domestic secondary market yields as well as Pakistan’s Eurobond yields and CDS spreads since last meeting.
SBP’s forex reserves also declined largely due to debt repayments and government payments pertaining to settlement of an arbitration award. However, some of this decline in reserves is expected to be reversed as official creditors renew their loans.
The current account deficit is still expected to be around 4% of GDP in FY22. While the non-oil current account balance has continued to improve, the overall current account remains dependent on global commodity prices.
However, few analysts said that though the uncertainty has diminished, but if some political upheaval spark in coming days, the recovery rally might prove short lived.
