After a downward slide that saw it reach an 11-month low, the Pakistani rupee reversed its downward trend against the US dollar to finish with a gain of 0.28% on Thursday.
As per the State Bank of Pakistan (SBP), the currency closed at 165.81 against the dollar in the inter-bank market after an increase of Rs0.47 or 0.28%.
The gain comes after weeks of depreciation that saw the rupee close to 5% since June 2021.
Topline Securities CEO Mohammed Sohail in a tweet post said that the rise in USD despite high foreign exchange reserves is due to low import cover.
“People asking why Pak rupee falling in spite of record-high FX reserves? Answer: FX reserves are high but import cover is not high rather it is in line with the last 10 year average of close to three months,” said Sohail.
Import cover is the number of months of imports that could be paid for by a country's international reserves; thus a measure of the adequacy of its reserves as a hedge against a crisis.
On Tuesday, the SBP said it received $2.75 billion from the International Monetary Fund (IMF) as part of the newly-allocated Special Drawing Rights (SDR).
However, foreign exchange reserves, which are likely to cross $27 billion when the SBP releases the weekly data later on Thursday, are now not being used to support the currency, say market experts. A free-floating exchange rate is now being determined by market forces.
These are then determined by dollar payments for imports and inflow of the greenback due to remittances and exports.
Pressure on the rupee has increased due to Pakistan's current account deficit that has widened in recent months due to the high import bill. According to provisional foreign trade figures, during the first month of the current fiscal year (2021-22), country's goods import payments increased significantly by 51% to $5.396 billion in July 2021 compared to $3.557 billion July 2020.
Pakistan's current account posted a $773-million deficit during the first month of the current fiscal year (FY22) due to the higher import bill.