Rupee Gains Further Ground Against US Dollar 2nd Day in a Row

The Pakistani rupee (PKR) gained further ground and reported gains against the dollar during interbank trade on Wednesday, rising as high as 263 against the greenback after the government started the implementation of the mini-budget late Tuesday night.

At close, the rupee appreciated by 0.74 percent and suspended movement at 265.38 after gaining Rs. 1.95 against the greenback.

The local unit was all green against the dollar and opened trade at 267 in the open market. By midday, the greenback went lower against the rupee to around 263. After 1 PM, the local unit was largely green against the top foreign currency before the interbank close.

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Today’s gains come after the government started the implementation of the mini-budget late Tuesday night by raising the sales tax rate from 17 to 18 percent and 150 percent raise in the rates of the Federal Excise Duty on cigarettes from Feb 14, 2023.

Money changers said it is unlikely the rupee is surging due to the latest tax implementations to appease the IMF. They said there’s still a tough journey ahead. Developments leading up to the next fiscal year’s budget unveiling could help drive exchange rates.

The rupee is still down over Rs. 32 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 per market trends and fiscal developments observed today, the PKR has managed to gain almost Rs. 2 for the second time this week.

Talks between the IMF and Pakistan continued this week with the latter hoping to unlock critical funding to keep it afloat. The talks are focused on reaching an agreement on a reform agenda under the country’s $6.5 billion bailout package, which initially began in 2019. A deal on the 9th Review of the program would free up more than $1.1 billion.

The financing from IMF, which is likely to also catalyze funding from other multilateral and bilateral partners, is crucial to alleviate Pakistan’s liquidity stresses, but at the same time is expected to run extra salt in the wounds of the poor in the shape of higher taxes, inflation, and power tariff hikes.