KARACHI—The Pakistani rupee experienced a significant rebound against the US dollar in the open market on Saturday, settling at an exchange rate of Rs280-Rs283, which was considerably lower than the official price. This surge in the value of the local currency came just a day after Pakistan reached a Staff-Level Agreement (SLA) with the International Monetary Fund (IMF).
In response to the development, currency exchange companies kept their airport branches open for travellers, witnessing a rush of individuals looking to exchange their dollars for rupees due to fears of further decline in exchange rates.
The SLA reached between Pakistan and the IMF entails a nine-month Stand-By Arrangement (SBA) for $3 billion, expected to receive approval from the Fund’s board in the middle of this month. The financial community perceives this agreement as a relieving development for the market, instilling confidence among all stakeholders of the economy.
The decrease in dollar rates below the interbank market rates reflects the immediate impact of the IMF deal, but the situation is expected to become clearer after the opening of banks on Monday. Before the market closure, banks were trading dollars at approximately Rs286.50.
Analysts anticipate that the falling dollar prices will lead to increased inflows from both remittances and export proceeds. Bankers believe that exporters have approximately $5-6 billion in export proceeds abroad, which will likely be repatriated before potential price fluctuations following the approval of the IMF board, which would enable the release of a $1.1 billion tranche. Multilateral institutions such as the Islamic Development Bank (IDB), World Bank, and others may disburse $3 billion over the next six months, while around $2.5 billion of pledged $9 billion could materialise within the next 12 months.
While there may be a temporary increase in inflation due to IMF conditions, most analysts expect inflation to ease in the coming months.
Foreign investors have reacted positively to the IMF deal, with Pakistan Eurobonds experiencing a 10% increase in the UK market during morning trade. Short-duration bonds have rallied, with Pak 2024 reaching approximately 71 cents and Pak 2025 at around 55 cents. These prices have risen by 70-80% since October 2022.