The State Bank of Pakistan (SBP) will continue to build its dollar stockpile but at a slower pace without putting undue pressure on the rupee, according to Citigroup Inc., Bloomberg reported.
“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,” Katie Kironde, emerging markets economist and macro strategist at Citi, wrote in a note.
The central bank eased its reserve building strategy this week, and this helped liquidity improve in the interbank market, she added.
The pressure on the Pakistani rupee has eased in the past three trading sessions, data from the central bank shows. The currency, however, is still lagging most peers in Asia year-to-date, having fallen over 2% against the dollar. The country’s forex reserves, meanwhile, rose $23 million to $14.53 billion as of July 11.
In the interbank market on Friday, the rupee appreciated 0.27% against the US dollar, settling at 283.45, a gain of Re0.77 compared to the previous close of 284.22. This marks a continuation of the currency’s strengthening trend observed earlier in the week.
Currency dealers attribute the improvement in the rupee’s performance partly to a reported crackdown on foreign currency smuggling by law enforcement agencies.
According to Malik Bostan, Chairman of the Exchange Companies Association of Pakistan (ECAP), raids conducted by the Federal Investigation Agency (FIA) against smugglers led to a drop in the dollar rate both in open and interbank markets. On Wednesday, the rupee had recovered by Re0.21 in the interbank, closing at Rs284.76 compared to Tuesday’s Rs284.97.
Bostan revealed that he had led a delegation to meet Director General Counter-Intelligence General Faisal Naseer at the Inter-Services Intelligence (ISI) headquarters.
Following the meeting, orders were reportedly issued for a targeted crackdown against currency smugglers, particularly those operating 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, expressing optimism that the exchange rate could fall further to Rs270 or even Rs250 if enforcement continues.
Meanwhile, global currency markets also lent support to the rupee’s recent performance. The US dollar steadied near two-week lows on Friday, with the dollar index set for its weakest weekly performance in a month. Oil prices also rose on optimism around trade developments and potential Russian gasoline export restrictions, further supporting sentiment.
Financial conditions in Pakistan have improved, with the central bank cutting the key policy rate by half to 11% since last year to bolster growth.
The South Asian nation has steered itself out of near-default conditions in 2023, with the Shehbaz Sharif-led government unlocking funds under International Monetary Fund programs and unveiling a budget that pledged to stay the course on fiscal consolidation.
