KARACHI: The Pak Rupee (PKR) on Friday made a single day record recovery of Rs3.50 against dollar following the sharp increase in key policy rate announced a day earlier.
The rupee ended Rs184.68 to the dollar from last day’s closing of Rs188.18, which is the highest closing of dollar, in the interbank foreign exchange market. The latest recovery in the local unit also broke the dollar gaining spree of 17 days.
READ MORE: PKR witnesses record single day fall to dollar
Currency analysts said that the rupee rebounded after the State Bank of Pakistan (SBP) announced a sharp raise of 250 basis points in key policy rate.
The central bank increased the policy rate to 12.25 per cent from 9.75 per cent for next two months.
READ MORE: Dollar tops PKR 186.13 at interbank closing
The SBP noted that the recent developments necessitated a strong and proactive policy response.
Accordingly, the Monetary Policy Committee (MPC) decided at its emergency meeting today, to raise the policy rate by 250 basis points to 12.25 percent.
READ MORE: Dollar continues record spree against PKR; hits 185.23
This increases forward-looking real interest rates (defined as the policy rate less expected inflation) to mildly positive territory. The MPC was of the view that this action would help to safeguard external and price stability.
The MPC also noted that SBP is in the process of taking further actions to reduce pressures on inflation and the current account, namely an increase in the interest rate on the export refinance scheme (EFS) and widening the set of import items subject to cash margin requirements. These items are mostly finished goods including luxury items and exclude raw materials.
The announcement of these measures is expected soon and will complement the action taken by the MPC on interest rates.