The dollar depreciates against rupee
In a notable development in Pakistan’s currency markets, the dollar depreciates against the rupee in the interbank market, while it remained unchanged in the open market. This shift came as a result of several economic and policy-related factors that have strengthened the rupee’s position in recent days.
Interbank Market: Dollar Sees a Downward Trend
On Wednesday, the US dollar lost value in the interbank market, briefly dropping by 26 paise to reach Rs 281.50. However, by the end of the trading session, the dollar closed at Rs 281.30, just one paisa lower than the previous day.
The decline was primarily driven by:
- Expected remittance inflows: An anticipated inflow of $2 billion in remittances from overseas Pakistanis, particularly from districts affected by recent floods, has increased the supply of foreign currency in the market.
- Government’s global bond issuance: The government is planning to issue $400 million worth of global bonds, which is expected to bring in additional foreign exchange reserves.
- Falling global crude oil prices: As oil prices drop internationally, Pakistan’s import bill is likely to shrink, easing pressure on the demand for the US dollar.
These factors combined to boost the rupee’s position and led to the dollar’s depreciation during interbank trading.
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Open Market Remains Unchanged
Despite fluctuations in the interbank market, the open currency market showed no change. The dollar remained steady at Rs 282.35, reflecting a balance in supply and demand from retail buyers and exchange companies.
Market observers note that the open market often responds more slowly to economic shifts than the interbank market, especially when institutional-level transactions and policies drive the changes.
Macroeconomic Stability Supports Rupee
Another key development that supported the rupee’s stability is the government’s successful payment of $500 million to investors of 10-year Eurobonds. This timely payment has sent a strong signal to international markets about Pakistan’s financial commitments.
Additionally, despite the devastation caused by recent floods in parts of the country, reports indicate a level of macroeconomic stability. This stability is helping to build investor confidence and easing fears of a balance of payments crisis.
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What to Expect Ahead?
The future of the exchange rate will depend on several factors:
- If the expected remittances and bond issuance go as planned, they will likely improve the supply of dollars in the market.
- Continued decline in oil prices may further reduce import-related demand for the dollar.
- However, a rise in import demand or delays in foreign inflows could again put pressure on the rupee.
Overall, the short-term outlook for the rupee appears stable, provided external economic conditions remain favorable and government policies continue to support the balance of payments.