The rupee made significant gains against the dollar in the inter-bank market on Wednesday, closing at Rs228.80, an appreciation of Rs9.58 against the greenback, the State Bank of Pakistan said. The dollar stood at Rs230 in the open market, as per dealers said.

“I think we have to see in a vast canvas why it spiked so much and how it fell,” Zubair Motiwala told Aaj News. “I think the big news was that IMF said Pakistan has met all our [prior] conditions, which means that people had confidence that the global tranche would come.”

He added that the IMF package would further open multilateral inflows of $19 billion from World Bank and friendly countries. Secondly, the political stability over the completion of government tenure also contributed to the massive gain in the rupee’s value. Moreover, there was a decrease of $1 billion in the current account.

“But, I fear that would it last for a longer period?” he said, “we need political stability. This is an examining position, however, it is better for Pakistan, it should further go down. The realistic value stands from 192 to 200.”

The development comes a day after the IMF announced that Pakistan has met the last prior action for the combined seventh and eighth reviews of the tranches with the increase in the petroleum development levy. A three-member bench of the ECP in a unanimous decision on Tuesday, after over seven years, ruled that the former ruling party took prohibited funding from foreign companies and hid 13 accounts out of the total 34 from where it received the money.

Alpha Beta Core CEO Khurram Schehzad, in a statement, said that the inflow from the IMF would open gateways for multilateral inflow, including from friendly countries.

“The inflows, coupled with global and local recession impacting or reducing oil, food and commodity prices, would lead to a much lower import bill, thereby lowering demand for dollar outflows,” he said. “This should help improve the PKR against the dollar, at least for some time.”

Analyst Afaaq Hussain linked the development to the improvement in the import bill. But, he said it was not a permanent solution. “The basic reason is the political stability,” he said in response to a query over the long-term plan, and highlighted the import substitution.

The rupee closed at 238.38 on August 2, the State Bank of Pakistan said in a tweet.

Rupee’s overshoot ‘temporary’

The rupee has overshot temporarily but it was expected to appreciate in line with fundamentals over the next few months, the State Bank of Pakistan and the finance ministry said in a statement on July 31.

“Around half of the Rupee depreciation since December 2021 can be attributed to the global surge in the US dollar, following historic tightening by the Federal Reserve and heightened risk aversion,” it said.

It added that it was also driven by domestic fundamentals while noting the widening of the current account deficit, especially in the last few months. “The deficit is expected to narrow going forward as the temporary surge in the import bill is brought under control. As this happens, the rupee is expected to gradually strengthen.”

The central bank and the ministry admitted that depreciation was due to concerns about domestic politics and the IMF programme. Such uncertainty was being resolved, such that the sentiment-driven part of the rupee depreciation would also unwind over the coming period.

“Going forward, as the current account deficit is curtailed and sentiment improves, we fully expect the rupee to appreciate,” he said, “clearly, the rupee can overshoot temporarily as it has done recently. But, it moves both ways over time. We expect this pattern to re-assert itself in the coming period. As a result, the rupee should strengthen in line with improved fundamentals in the form of a smaller current account deficit as well as a stronger sentiment.