Rupee rises for 16th day on dollar inflows

Our Correspondent
Thursday, Sep 28, 2023

KARACHI: The rupee rose for a 16th straight session against the dollar on Wednesday, supported by increased official inflows and a crackdown on illegal currency dealers and smugglers, dealers said.

In the interbank market, the rupee closed at 288.75 to the dollar, down from 289.80 the previous session, demonstrating the currency's continued strength. The currency gained 1.05 rupees or 0.36 percent on a day-on-day basis.

The local unit rose 1 rupee to 290 per dollar in the open market. "Although there hasn't been a significant influx of foreign loans or investments, the crackdown on the grey market has redirected funds towards official channels. Furthermore, the diminishing gap between the interbank and the kerb market has facilitated improved remittance inflows through legitimate channels," said Chase Securities in a note. In the foreign exchange interbank market,forward premiums have seen a substantial reduction due to exporters' forward bookings, it added.

On top of this, debt repayments are gradually being made as they come due, and the SBP continues to build foreign exchange reserves, as reflected in the increase in SBP reserve numbers last week.

"This improvement in the currency has instilled confidence in the markets, particularly since inflation has been significantly impacted by currency devaluation," it said. "As the rupee strengthens and twin deficits are managed more effectively, we can anticipate a notable reduction in inflation figures in the months ahead."

In the coming months, remittances are projected to increase thanks to increasing incentives for remitters and a crackdown on the grey market. This would maintain market FX liquidity together with increased exports.

Another analyst predicts that even while some of the import backlogs have been reduced, the remaining ones will keep the demand for dollars high.