The rupee made a strong recovery in the interbank market on Wednesday, rising by more than Rs10 against the dollar.
According to the Forex Association of Pakistan (FAP), the rupee gained 88 paise by 9:50am to reach Rs237.5 compared to yesterday’s close of Rs238.38.
Later, the local currency recovered further and was being traded at Rs228 around 12:50pm, up Rs10.38 compared to yesterday’s close, according to Mettis Global — a web-based financial data and analytics portal.
FAP Chairperson Malik Bostan said that the lower import bill for July had helped reduce the country’s trade deficit, which in turn had eased the pressure on the rupee.
Business and economy journalist Khurram Husain said the rupee’s recovery was due to a sharp drop in import payments after all letters of credit for oil in July were cleared and exporters rushed to close their open positions.
“August likely to see lower oil-related payments with near record stockpiles of petrol & diesel in the country today. Rupee reverting to where it should be after a brief spell of extraordinary pressure in July,” he tweeted.
According to Mettis Global, today’s remarkable recovery is “primarily attributed to the improved economic fundamentals as the import bill in July 2022 has been reduced to $4.86 billion, down by 38.31 per cent, compared to $7.88bn in the previous month”.
Accordingly, the trade deficit for July narrowed to $2.64bn compared to a deficit of $4.96bn in the preceding month, a slump of 46.77pc.
Bostan said part of today’s recovery was also based on expectations that the International Monetary Fund (IMF) would release its tranche soon.
“The difference of Rs10 between the rates in the open market and interbank market due to the smuggling of dollars into Afghanistan has been equalised because of tighter security at the border,” Bostan said. “The transfer of dollars into Afghanistan has stopped, the effect of which has strengthened the rupee.”
Mettis Global Director Saad bin Naseer said the PKR was stabilising over the bleak demand outlook amid rising inflation as seen in the slump in fuel and cement sales during July.
Referring to the IMF’s statement yesterday that Pakistan has completed all prior actions for the seventh and eighth review, he said the clarity on that front and expected inflows were also supporting the local currency.
“However, further strengthening of the US dollar or a flare-up in tensions between US and China over Taiwan could prove as downside risks for the rupee,” he added.
Import bill dips
Data released by the Pakistan Bureau of Statistics (PBS) on Tuesday showed the import bill dropped by 12.81 per cent to $4.86 billion in July from $5.57bn over the corresponding month of last year. On a month-on-month basis, the import bill dipped by 38.31pc.
In June alone, the import bill edged up to $7.74bn from $6.28bn over the same month last year, reflecting an increase of 23.26pc.
The import bill had increased 43.45pc to $80.51bn during fiscal 2021-22, up from $56.12bn a year ago.
Pakistan’s trade deficit declined by 18.33pc to $2.64bn in July from $3.23bn over the corresponding month of last year. The month-on-month decline in trade deficit was recorded at 46.76pc.
In FY22, the trade deficit reached an all-time high of $48.66bn from $30.96bn a year ago, indicating an increase of 57pc on the back of higher-than-expected imports.