Unlike the outgoing fiscal year, the rupee-dollar exchange rate is expected to remain steady in 2024-25. On Thursday, the local currency dropped by just nine paise against the dollar in the interbank market.
Currency dealers attribute this exchange rate stability to a modest current account deficit, which shrank to $202 million during the first 10 months of FY24, compared to $3.92 billion in the same period last year.
At the start of FY24, the exchange rate was highly volatile, with the rupee plunging to Rs306 against the dollar in the first week of July 2023.
Some currency dealers noted that the State Bank’s foreign exchange reserves, around $9 billion, also contributed to the exchange rate stability. However, some experts pointed out that these reserves appear weak in light of the $8 billion in debt servicing required in the first two months of FY25.
Experts predict exchange rate stability in the next fiscal year.
“Among all positive factors, the anticipated IMF deal for a new loan would support market stability the most,” said Atif Ahmed, a currency dealer in the interbank market.
Most analysts believe that the current exchange rate is being managed with the IMF’s approval, suggesting that the exchange rate parity will remain stable.
Previously, the IMF was highly critical of the SBP’s exchange rate management. “Since the government is strictly following the IMF’s directives to generate revenue, without considering the impact on economic growth and the negative effects on trade and industry, there is optimism about the next loan package,” said Amir Aziz, an exporter in Karachi.
According to the State Bank, the dollar settled at Rs278.60, compared to Rs278.51 before the Eid holidays.
However, the open market was relatively active due to high inflows during Eid. Exchange companies maintained a Rs3 per dollar difference between selling and buying rates, with the dollar’s selling and buying rates at Rs280.32 and Rs277.61, respectively.
Exchange companies reported high inflows in June, similar to the previous month. These firms sold $450 million to banks in May and expect similar inflows by the end of the current month.
The exchange rate has remained stable for the past four months, with minor fluctuations in both directions.
SBP reserves rise The State Bank’s foreign exchange reserves increased by $31 million to $9.134 billion during the week ending on June 14.
This increase did not reflect new inflows, as bankers noted that the central bank had been buying dollars from the interbank market.
The country’s total foreign exchange reserves during the week were $14.414 billion, including $5.279 billion held by commercial banks.
