Rupee Hits Three-Week High on Improved Dollar Supply
Gains Momentum with Rising Foreign Reserves, Exports, and Remittances
Introduction
KARACHI: The Pakistani rupee surged to a three-week high against the US dollar on Friday, fueled by an increase in the supply of dollars relative to demand. This appreciation marks the rupee’s third consecutive day of gains.
Recent Performance of the Rupee
The rupee appreciated by Rs0.07, reaching Rs277.67 against the US dollar in the interbank market. Over the past three days, the domestic currency has strengthened by Rs0.26, according to data from the State Bank of Pakistan (SBP).
Performance in the Open Market
The Exchange Companies Association of Pakistan (ECAP) reported a Rs0.09 gain in the open market, with the rupee closing at Rs278.65. This indicates a positive trend across both interbank and open markets.
Factors Behind the Appreciation
Several factors have contributed to the rupee’s recent gains:
Increased Foreign Exchange Reserves
A significant driver behind the rupee’s strength is the rise in Pakistan’s foreign exchange reserves. On Thursday, the SBP reported a weekly increase of $84 million, bringing the reserves to a 31-month high of $11.26 billion. This marks the sixteenth consecutive week of rising reserves.
Improved Dollar Supply
The improved supply of dollars in the market is another crucial factor. According to Hassan Haider, Senior Analyst at Icon Management, currency-swap values are strengthening, reflecting better dollar availability.
Impact of Workers’ Remittances and Export Earnings
The SBP’s efforts to absorb the surplus supply of dollars have been supported by robust inflows from workers’ remittances and an improvement in export earnings. These factors have collectively bolstered the country’s foreign exchange reserves.
Detailed Analysis of Key Factors
Rising Foreign Reserves
The continuous rise in foreign exchange reserves is a testament to Pakistan’s improved economic stability. The SBP’s strategy of accumulating reserves has provided a buffer against external economic shocks, enhancing investor confidence.
Workers’ Remittances
Workers’ remittances have been a significant source of foreign exchange for Pakistan. The consistent inflow of remittances has helped maintain a steady supply of dollars, easing pressure on the rupee.
Export Earnings
Improved export earnings have also played a vital role. The government’s initiatives to boost exports have started yielding results, contributing to the overall supply of foreign exchange.
Market Reactions and Future Outlook
Interbank Market
In the interbank market, the rupee’s appreciation reflects the increased confidence of financial institutions in the domestic currency. The stable exchange rate is likely to attract more foreign investment, further strengthening the rupee.
Open Market
In the open market, the positive trend is expected to continue, provided that the supply of dollars remains robust. The slight appreciation indicates that the market dynamics are favorable for the rupee.
MUST READ:
https://skipper.pk/2024/11/16/stocks-at-record-high-over-easing-mini-budget-fears/
Expert Opinions
Hassan Haider’s Analysis
Hassan Haider, Senior Analyst at Icon Management, emphasized the role of improved dollar supply in the recent gains. He noted that the strengthening of currency-swap values is a clear indication of better dollar availability in the market.
Other Analysts’ Views
Other financial analysts have echoed Haider’s sentiments, highlighting the importance of foreign exchange reserves and remittances in maintaining the rupee’s stability. They predict that if these factors continue to improve, the rupee will likely strengthen further.
Challenges and Risks
External Economic Shocks
Despite the positive trends, the rupee remains vulnerable to external economic shocks. Any significant global economic instability could impact Pakistan’s foreign exchange reserves and, consequently, the rupee’s value.
Domestic Economic Policies
Domestic economic policies also play a critical role. The government’s fiscal and monetary policies must continue to support economic growth and stability to maintain the rupee’s strength.
Conclusion
The Pakistani rupee’s rise to a three-week high against the US dollar is a positive development, driven by improved dollar supply, rising foreign exchange reserves, and robust inflows from remittances and exports. While the future outlook remains optimistic, continued economic stability and effective policy measures are essential to sustain this momentum.
FAQs
1. What factors have contributed to the recent appreciation of the Pakistani rupee?
The recent appreciation of the Pakistani rupee is primarily due to improved dollar supply, rising foreign exchange reserves, robust inflows from workers’ remittances, and improved export earnings.
2. How has the State Bank of Pakistan’s strategy impacted the rupee?
The State Bank of Pakistan’s strategy of accumulating foreign exchange reserves has provided a buffer against external economic shocks, enhancing investor confidence and contributing to the rupee’s appreciation.
3. What role do workers’ remittances play in the rupee’s stability?
Workers’ remittances are a significant source of foreign exchange for Pakistan, providing a steady supply of dollars that helps maintain the rupee’s stability.
4. What are the potential risks to the rupee’s value?
Potential risks to the rupee’s value include external economic shocks and ineffective domestic economic policies. Any significant global economic instability or poor fiscal and monetary policies could impact the rupee negatively.
5. What is the outlook for the Pakistani rupee in the near future?
The outlook for the Pakistani rupee remains positive, with expectations of continued strength if the supply of dollars remains robust and economic stability is maintained.
