The Pakistani rupee continued on Wednesday to gain ground for the fourth consecutive session as the dollar’s slide persisted with the return of PML-N Senator Ishaq Dar — who took oath as a federal minister today.
In the interbank market during intraday trade, the rupee gained 1.91 to trade at 232 per dollar after it increased its value by 7.65 in the ongoing week.
Currency dealers and analysts have cited that the return of Dar — a close aide of PML-N supremo Nawaz Sharif — to Pakistan to take charge as the finance minister has helped improve sentiment and the fall in international commodity prices boosted the rupee’s rise.
The current account deficit — fortunately — will likely remain in check on account of declining international commodity prices and administrative measures taken by the government.
Inflation, too, has most likely peaked and is expected to come down over the coming months.
Economist and former adviser to the federal ministry of finance Dr Khaqan Hassan Najeeb said the first aspect is a change in market sentiment driven by a leadership change at the finance ministry.
“The new team is regarded to be more conscious of rupee movement and thus leaning to more orderly movement,” the former adviser said.
Secondly, he noted that some fundamentals have improved, especially a decline in oil prices as well as other key commodity prices, which may help reduce the quantum of imports.
“Thirdly, the confirmation by multilateral lenders to extend flood support is a market supporting development,” Dr Najeeb said.
Lastly, a bit farfetched but the possibility of reconsideration and leniency in some conditions by the International Monetary Fund (IMF) due to flood impact is driving a positive sentiment toward the rupee, Najeeb added.
Alfalah’s head of research Fahad Irfan said Dar would not have the kind of free hand he had in his previous term.
“The IMF, in general, has been much stricter in terms of policy implementation. Most importantly, Pakistan now has a free exchange rate regime, even otherwise, the country has record low forex reserves with no room to burn them to control the exchange rate,” he said.
“However, administrative curbs and stronger checks on manipulation and the smuggling of dollars out of Pakistan are still possible,” Irfan added.
He said the rupee was expected to regain some lost ground. However, with the fear of Dar, the pace of appreciation has accelerated.
He noted that changes in key positions, at times of catastrophic floods and an extremely fragile economic environment, might help Dar regain some lost popularity; however, this might slow down policymaking.
Dar maintained the rupee at a parity of 100 per dollar for his entire term (2013-2017) and kept the policy rate at its historic low of 5.75% from May 2016 to December 2017.
This lethal combo was the main reason why Pakistan posted a historic high current account deficit of $19.2 billion or 6.3% of the gross domestic product in FY2018 and eroded foreign exchange reserves to just 2 months of import cover, according to Irfan.