By Staff Reporter
KARACHI: Pakistan’s central bank will continue to build its dollar reserves but at a slower pace, aiming to avoid putting undue pressure on the rupee, Bloomberg reported on Friday.
“Although reserves have improved from the lows of early 2023, we still continue to welcome the central bank’s reserve building as external buffers remain low,” said Katie Kironde, emerging markets economist and macro strategist at Citi, in a note cited by Bloomberg.
The State Bank of Pakistan eased its reserve-building strategy this week, a move that has improved liquidity in the interbank market, Kironde added.
Data from the central bank shows that pressure on the Pakistani rupee has eased over the past three trading sessions. Despite this uptick, the currency remains under strain, having declined more than 2% against the dollar year-to-date, lagging most of its Asian peers. Meanwhile, the country’s foreign exchange reserves edged up by $23 million to $14.53 billion as of July 11.
On Friday, the rupee strengthened in the interbank market, appreciating 0.27% against the U.S. dollar to settle at 283.45, a gain of Re0.77 from Thursday’s close of 284.22. This followed a recovery earlier in the week, with the rupee gaining Re0.21 on Wednesday to close at Rs284.76, compared to Rs284.97 on Tuesday.
Currency dealers attribute part of the rupee’s recent improvement to a reported crackdown on foreign currency smuggling by law enforcement agencies. Malik Bostan, Chairman of the Exchange Companies Association of Pakistan (ECAP), said raids by the Federal Investigation Agency (FIA) had driven down the dollar rate in both open and interbank markets.
Bostan disclosed that he led a delegation to meet Director General Counter-Intelligence General Faisal Naseer at the Inter-Services Intelligence (ISI) headquarters. Following the meeting, authorities reportedly ordered a targeted crackdown on currency smugglers, focusing on routes to Afghanistan and Iran.
“The dollar supply to legal channels had been shrinking due to better rates in the black market. With this crackdown, the smuggler mafia has gone underground,” Bostan said. He expressed optimism that sustained enforcement could push the exchange rate down to Rs270 or even Rs250.
The rupee’s gains have also been bolstered by developments in global currency markets. The U.S. dollar steadied near two-week lows on Friday, with the dollar index on track for its weakest weekly performance in a month. Rising oil prices, fueled by optimism over trade developments and potential Russian gasoline export restrictions, further supported market sentiment.
Pakistan’s financial conditions have shown signs of recovery. The central bank has slashed its key policy rate by half to 11% since last year to stimulate growth. The South Asian nation narrowly avoided default in 2023, with the government led by Prime Minister Shehbaz Sharif securing funds through International Monetary Fund programs and presenting a budget committed to fiscal consolidation.
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