Karachi, October 17, 2024 – After a three-day decline, the Pakistani rupee made a modest recovery of 5 paisas against the US dollar on Thursday, closing at PKR 277.79 in the interbank foreign exchange market, compared to the previous day’s closing of PKR 277.84. The slight recovery follows a streak of losses that had sparked concern among market participants.
Currency experts attributed this turnaround to improved economic indicators and a boost in investor confidence following the successful hosting of the Shanghai Cooperation Organization (SCO) event in Pakistan. The positive outlook surrounding the nation’s economic prospects has helped ease some of the pressure on the local currency.
Factors Supporting Rupee’s Recovery
One of the key drivers of optimism for the rupee’s near-term stability is the recent improvement in Pakistan’s foreign exchange reserves. The State Bank of Pakistan (SBP) reported an increase in reserves, which stood at $16.05 billion as of the week ending October 4, 2024. This marks a $64 million gain from the previous week’s figure of $15.983 billion, signaling improved foreign inflows and better management of external accounts.
The rise in foreign exchange reserves is seen as a positive development that could help stabilize the rupee in the coming weeks. Financial analysts have pointed out that the strengthening reserves provide a buffer against external economic shocks and reduce Pakistan’s reliance on foreign borrowing.
Improved Trade Balance and Current Account Deficit
Another key factor supporting the rupee’s recovery is the ongoing improvement in Pakistan’s trade balance and current account deficit. In recent months, these deficits have narrowed, easing the strain on foreign exchange reserves. Economists have welcomed this trend, as a smaller deficit reduces the country’s need for foreign currency to meet its international payment obligations.
“The shrinking trade and current account deficits are promising developments for the rupee’s future stability,” said a leading currency expert. This, coupled with rising export growth and steady inflows of workers’ remittances, has provided much-needed support for the local currency.
Cautious Optimism Amid Risks
Despite the positive indicators, market experts have cautioned that the rupee’s stability remains vulnerable to external shocks. Changes in global economic conditions, such as fluctuations in commodity prices or unforeseen domestic challenges, could potentially disrupt the rupee’s trajectory.
Nevertheless, as Pakistan continues to improve its economic fundamentals, including stronger reserves and reduced deficits, the outlook for the rupee remains optimistic, with careful monitoring of both domestic and international factors essential for sustaining this recovery.