The Pakistani Rupee on Wednesday witnessed a steep recovery as it appreciated touching Rs173.1 against the greenback during the intra-day trading.
The recovery has come about following the agreement regarding the provision of a $4.2 billion lifeline by Saudi Arabia. Saudi Arabia will be providing the lifeline in the form of cash assistance as well as oil on deferred payments annually.
Earlier this week, Riyadh made an announcement to deposit $3 billion in Pakistan’s central bank in addition to an oil facility worth $1.2 billion on deferred payments to help the local economy as well as ease the pressure off foreign exchange reserves.
As per the State Bank of Pakistan (SBP), the local unit closed at Rs175.27 against the US dollar on Tuesday.
Managing Director and CEO at Arif Habib Corporation Ahsan Mehanti said that the rupee rebounded sharply against the dollar owing to the upbeat announcement from Saudi Arabia to inject $3 billion in the SBP.
He said, “The news flow was cherished by all markets and it is positively impacting the foreign exchange segment. Moreover, sentiment recovered in all markets including financial, fixed income and equity segments.”
He further noted that continued recovery in the local currency can lower the prices of petroleum products in Pakistan. He added that the gap between demand and supply of USD is way higher than $3 billion assistance which has been announced by Saudi Arabia. Hence, the local unit needs to appreciate substantially to curb the inflationary pressure. Mehanti added that the oil facility is also expected to provide support to the local economy.
Alpha Beta Core CEO Khurram Schehzad expressed similar views stating that the optimistic announcement from Saudi Arabia last night was the reason behind the uplifted spirits of market participants. He said that the announcement had a psychological impact that has helped take the pressure off the Pakistani rupee.
Schehzad said, “Pakistan imports oil worth nearly $15 billion per year, and Saudi oil facility will help meet a small share of this value. Dollar outflow is expected to reduce as well.”
Both analysts expect the inflation to lower following significant appreciation in the local currency. They expressed that recovery in the rupee will partly decrease the import bill and ease the pressure off reserves.
