The Pakistani rupee showed modest improvement in the interbank foreign exchange market on Friday, appreciating by 8 paisas to close at PKR 278.56 against the US dollar. This minor recovery comes after a period of heightened pressure on the currency, driven by increased demand for dollars to meet import and corporate payment obligations.
Market analysts attributed the rupee’s stabilization to reduced demand for the greenback, as import activity and corporate dollar-denominated transactions slowed. This shift offered a temporary respite to the rupee, which had been under considerable strain due to rising import costs and external financial pressures.
The week leading up to this recovery painted a challenging picture for the rupee. Data released by the Pakistan Bureau of Statistics (PBS) revealed a significant 17.44% increase in the country’s import bill in December 2024. Imports surged to $5.29 billion during the month, compared to $4.50 billion in November. This sharp rise in imports intensified demand for dollars, leading to downward pressure on the local currency.
Despite the challenges, positive developments in Pakistan’s external sector have provided a silver lining. The country’s foreign exchange reserves, though slightly reduced, remain substantial. As of December 20, 2024, reserves stood at $16.371 billion, reflecting a decrease of $262 million compared to $16.633 billion on December 13. While lower reserves could limit the central bank’s ability to intervene in the currency market, the overall external sector performance offers some relief.
One of the most notable shifts has been Pakistan’s current account performance. Between July and November 2024, the country posted a current account surplus of $944 million, a remarkable improvement from the $1.68 billion deficit recorded during the same period in 2023. This adjustment highlights a positive trend in Pakistan’s economic balance, which has contributed to the rupee’s relative stability.
Adding further support to the economy, remittances from overseas Pakistanis surged by 34% during the first five months of the fiscal year 2024-25. Total remittances reached $14.77 billion, a significant increase from $11.05 billion in the previous year. These inflows have provided much-needed liquidity, easing external financial pressures and bolstering confidence in the domestic currency.
The rupee’s recent recovery, though modest, signals a potential stabilization in the foreign exchange market. Experts believe that a sustained reduction in import demand and continued growth in remittances could further strengthen the rupee in the coming months. However, challenges persist, particularly in managing import costs and maintaining adequate foreign exchange reserves to support the currency.
As Pakistan navigates these economic complexities, the interplay between external sector performance and domestic fiscal policies will be crucial in determining the rupee’s trajectory. For now, the modest gain of 8 paisas reflects a moment of stability, offering a glimmer of optimism for the country’s financial landscape.