The Pakistani currency has been strengthening against the US Dollar for the ninth consecutive working day, primarily due to significant support from administrative actions such as cracking down on currency smugglers and hoarders. These measures have increased the supply of foreign currencies in the banking system.
As per data from the State Bank of Pakistan (SBP), the currency has reached a new one-month high at Rs295.95 against the US dollar, showing a daily gain of 0.30%, which is equivalent to Rs0.90. Over the past nine days, the Pakistani rupee has appreciated by a total of 3.76%, or Rs11.15, recovering from its all-time low of Rs307.10/$ earlier this month.
The recent movement of the rupee suggests that it may stabilize within the range of Rs290-295/$ in the short term. Previously, it had experienced a 6% depreciation, or Rs18.60, reaching the record low at Rs307.10/$ during the initial three weeks of the current caretaker government, leading to speculation that the government was allowing the currency to depreciate based on recommendations from the International Monetary Fund (IMF).
Topline Securities predicts that the rupee may resume its decline in the medium to long term and could potentially reach Rs320-340/$ in inter-bank trade by the end of the current fiscal year on June 30, 2024. According to a recent poll conducted by Topline Research, 38% of key market participants anticipate the rupee-dollar exchange rate to fall within the range of Rs320-340 by June 2024. About 25% expect it to be between Rs340 and Rs360/$, 21% foresee it in the range of Rs300-320, 12% believe it will remain below Rs300, and 5% project it to exceed Rs360.
In the open market, the currency remained stable at Rs297/$ on Monday, according to the Exchange Companies Association of Pakistan (ECAP). Earlier, it had registered cumulative gains of 10.43%, equivalent to Rs31, over the past 10 working days.
The Real Effective Exchange Rate (REER), which measures the value of the rupee against a basket of trading partner currencies, depreciated to 90.1 on the REER index in August, compared to 91.59 in July, according to Pakistan’s central bank. Topline Securities suggests that the REER indicates the rupee is undervalued, implying that there is room for further recovery against the basket of currencies. The 10-year average of REER stands at Rs106.7 on the index. In recent years, the central bank has mostly maintained it within the range of 95-96 under the IMF’s loan program.
Topline also highlights that the caretaker government, in collaboration with the State Bank of Pakistan (SBP), has implemented various measures to curb demand in the open market. These measures include increased border security to prevent currency smuggling, the closure of exchange companies engaged in illicit activities, and SBP directives to category ‘B’ exchange firms and franchises to either merge with full-fledged entities or sell their businesses to stronger counterparts.