Around noon on Friday, the Pakistani rupee experienced a sharp recovery against the US dollar, rising 4.5%, or more than Rs12, to Rs273.
After yesterday’s historic drop of 6.7%, or Rs19, to an all-time low of Rs285 per US dollar, the rupee gained some ground against the dollar.
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The most recent recovery comes after three recent developments.
First, Finance Minister Ishaq Dar said that the government hopes to get the staff-level agreement with the International Monetary Fund (IMF) next week, which has been pushed back so much. The program saves the economy and keeps the country from going bankrupt.
Second, the rupee appreciated after the central bank increased its key policy rate by 300 basis points on Thursday to 20%, the highest level in 26 years.
Because it makes it more expensive to obtain banking credit, raises the cost of doing business, and discourages imports, the increase in the policy rate indirectly supports the rupee’s value against the dollar.
Thirdly, on Thursday, the State Bank of Pakistan (SBP) made an official announcement that the country’s foreign exchange reserves had increased for the third week in a row.
The local currency is directly protected from the dollar from abroad by the expansion of foreign exchange reserves.
The SBP reported on Thursday that the country’s reserves increased to a nearly six-week high of $3.8 billion following China’s $700 million loan.
The IMF’s concerns that the government was still in control of the rupee and that the black currency market was reorganizing had earlier caused the domestic currency to fall to a record low of Rs285 per dollar.