The rupee made a significant recovery on Friday as the dollar fell by Rs. 3.3 to close at Rs. 163.58 in the interbank market. In percentage terms, this represented a 2.57 per cent decline in the greenback compared to the peak rate of 167.89 a week ago.
Gains made by the rupee are being attributed to the $1.386 billion disbursement to Pakistan by the International Monetary Fund (IMF). The loss was due to outflow of hot-money because of the sharp cut of two percentage points to 9% after an emergency meeting of the Monetary Policy Committee. The move took the policy rate down to 9pc, back in single digit territory for the first time since 2018.
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The money was released by the IMF under the Rapid Financing Instrument to help the country address the economic fallout from Covid-19.
The IMF support will help provide a backstop against the decline in international reserves and provide financing to the budget for targeted and temporary spending increases aimed at containing the pandemic and mitigating its economic impact.
Zafar Paracha, the former general secretary of the Exchange Companies Association of Pakistan, said “The increase in rupee was primarily due to the decision of the IMF, including the $1.386bn financing, plus the debt relief offered by G-20 until the end of 2020 to developing nations, including Pakistan, helped boost sentiments in the market”.
It is imperative that the State Bank steers its way through this global pandemic. Such relief programs have been given to Pakistan in different shapes and forms in the past. Reza Baqqir must manoeuvre the exchange rate expertly in order to curtail the volatility of the dollar and keep it at the Rs.160 level.