The Pakistani rupee’s impressive performance against the US dollar has now extended to a full month, marking a significant achievement. Since September 5, the local currency has strengthened by 23.50 against the greenback in the interbank market. This positive trend can be attributed to a military-backed crackdown on currency smuggling, which has been instrumental in curbing illegal practices.
As of today, the Pakistani rupee is trading at 283.60 per dollar in the interbank market, further gaining 1.8 against the US dollar. This marks a remarkable improvement compared to September 5 when it had reached 307.10 against the dollar in the interbank market.
Analysts believe that this strengthening of the rupee is largely due to the decline in demand for dollars in the black market. According to Samiullah Tariq, Head of Research at Pak-Kuwait Investment Company, the crackdown on illegal practices has led to the disappearance of illicit demand, contributing to the rupee’s appreciation.
Looking ahead, Tariq anticipates that the rupee will continue to strengthen, possibly reaching 280 against the dollar. Mustafa Mustansir, Head of Research at Taurus Securities, points to the crackdown on grey markets and illegal hoarding of dollars as the main reasons for the rupee’s rise. He also suggests that the illegal flow of dollars to Afghanistan has been curtailed, and regulatory measures by the State Bank of Pakistan (SBP) have further encouraged the selling of dollars in the open market. Mustansir expects this positive trend to persist.
While the rupee’s short-term outlook appears optimistic, its medium-term trajectory will depend on the country’s economic fundamentals, including the conclusion of the International Monetary Fund’s review of the stand-by arrangement (SBA) and the status of foreign exchange reserves. An IMF review is anticipated in late October or early November 2023.
