The Pakistani rupee (PKR) reversed losses against the dollar during interbank trade on Monday, initially dropping as low as 277 against the greenback before bouncing back as talks with the International Monetary Fund (IMF) advance to a critical stage.
At close, the rupee appreciated by 0.46 percent and suspended movement at 275.30 after gaining Rs. 1.28 against the greenback.
The local unit was largely bullish against the greenback and opened trade at 274.46. in the open market. By midday, the greenback moved higher against the rupee to as high as 271. After 1 PM, the local unit moved lower against the top foreign currency before the interbank close.
In the open market, the domestic currency last week dived to a record low of 280 per US dollar after authorities released control and allowed market forces to dictate exchange rate movement. The rupee is down almost Rs. 45 since its record-breaking single-day drop of Rs. 25 in the last week of January after the currency was finally ‘freed’ against the US dollar in the inter-bank market. As opposed to market trends observed today, the PKR has managed to gain Rs. 1.28 today.
Money changers are of the view the local unit will likely depreciate significantly in the coming days as part of the preconditions for reviving the IMF bailout. Given the free-float model, no one can predict how low the currency may fall. Even more so, Dar’s new economic stance may add more spice after IMF forces Pakistan to accept its contingency measures to curb the spiraling circular debt and to recover the Federal Board of Revenue’s (FBR) tax revenue fallout.
The lender evidently wants additional tax measures, such as a 1 percent increase in the standard sales tax rate, to help bridge the revenue gap. But any decision in that regard hinges on the revenue gap, which would be finalized during the policy-level discussions.
The IMF has been pushing for the withdrawal of the Rs. 100 billion power subsidy to the export-oriented sector, as well as full recovery of the Rs. 952 billion power sector gap through tariff increases. However, the government has been attempting to explain to the IMF team that settling the entire amount would be incredibly hard.
Talks with the lender have been extended on the contingency measures, including the power sector, for two more days.
The PKR was bullish against all of the other major currencies in the interbank market today. It gained 33.8 paisas against the Saudi Riyal (SAR), 34 paisas against the UAE Dirham (AED), Rs. 2.01 against the Canadian Dollar (CAD), Rs. 4.32 against the Euro (EUR), and Rs. 4.52 against the Australian Dollar (AUD).
Moreover, it gained Rs. 5.30 against the Pound Sterling (GBP) in today’s interbank currency market.