Rupee keeps going up amid IMF inflow hopes

KARACHI: For the last three months, the rupee continued appreciating against the US dollar, reaching close to Rs277 in the interbank market on Tuesday amid hopes for fresh inflows from the International Monetary Fund (IMF).

However, a surge in terrorist attacks in the country and the killing of five Chinese engineers associated with the Dasu hydropower project could shatter the government’s plan to launch $300 million Panda bonds in the Chinese market, said financial experts.

The State Bank of Pakistan (SBP) reported that the dollar price fell five paise to close at Rs278.08, a five-month low against the rupee.

The consistent depreciation has forced exporters to sell their dollar proceeds amid growing fears of further drop in the exchange rate in the coming days.

Experts say Bisham attack may jeopardise Panda bond plan

Currency market experts said there was no glut of dollars in the banking market due to low demand owing to the government’s policies to discourage imports.

“Hopes for further dollar inflows have supported the market sentiment for a stable exchange rate,” said a senior banker.

Financial sector experts said the rupee may appreciate further after the government reached a Staff-Level Agreement with the IMF for the final tranche of $1.1bn early next month under the current $3bn Stand-by Arrangement.

However, a financial expert not willing to be identified expressed disappointment over the suicide attack on Chinese citizens working on the Dasu dam.

“Difficult to assess so quickly about the repercussions of the killing of five Chinese citizens, but I would say that it would further downgrade the economic relations with China,” he said, adding that the plan for the issuance of $300m Panda bonds must be put on hold for the time being.

Finance Minister Muhammad Aurangzeb had on Friday said that the government was keen to tap the Chinese market for fundraising by introducing Panda bonds this year.

The financial experts said it also depends on how China reacts after the killing of its citizens in Pakistan. It may also affect the prime minister’s expected visit to China in the coming weeks.

The Chinese have already restricted investments in Pakistan. During the first eight months of the current fiscal year, the foreign direct investment from China fell to just $80.4 million compared to $472m in the same period last year. The new government is planning to improve the economic ties and attract Chinese investment under the new phase of CPEC.

Published in Dawn, March 27th, 2024