Pakistan’s rupee surged 5.2 percent this week, the best performance among world currencies, as the nation’s rising foreign reserves and improving economy buoyed investor confidence.
The country’s currency stockpile climbed to $9.52 billion this week, Finance Minister Ishaq Dar said yesterday, from $8.3 billion at the end of 2013. The economy is on course to achieve the official target of 4.4 percent expansion in the year ending June 30, he said, after the prior period’s 3.6 percent growth. A planned global bond offering, an auction of third-generation mobile-phone licenses and an International Monetary Fund loan are set to boost fund inflows, according to the central bank.
The rupee rallied 7 percent this month to 98.08 per dollar, according to data compiled by Bloomberg. The currency, which touched the strongest level since June of 97.7870 yesterday, slipped 0.2 percent today. JS Global Capital Ltd., a Karachi-based brokerage, said it raised its year-end forecast for the rupee yesterday to 106 from 111.
“Foreign-exchange reserves have a huge hand in this” rally, said Muzzammil Aslam, Karachi-based managing director at research firm Emerging Economics Research. “Expectations for further inflows are high, including the IMF loan tranche and the 3G auction scheduled for next month.”
Foreign reserves will rise to about $16 billion by December, Finance Minister Dar said in a statement on Feb. 13. The recent increase in the stockpile was due mainly to inflows of about $1.5 billion into the Pakistan Development Fund, he said yesterday. In September, the IMF approved a $6.6 billion loan for the country to bolster an economy suffering from power shortages and a Taliban insurgency.
Gains in the rupee quickened this week as exporters rushed to repatriate their overseas income before a stronger local currency eroded their profits, according to Global Securities Pakistan Ltd., a Karachi based brokerage.
“There’s some panic with exporters trying to expedite payments from clients, since a rising rupee is against their interests,” said Sana Abdullah, head of research at Global Securities.
Pakistan plans to raise as much as $1 billion in its first bond issue abroad since 2007, a finance ministry official, who asked not to be identified because he isn’t authorized to speak publicly, said in October.
Pakistan plans to raise as much as $500 million in its first overseas bond sale since 2007, according to Finance Minister Dar. The offering is expected to take place by end-March and may be followed with a sukuk issuance, Dar said in Dubai on Feb. 9.
“A stable forex market is a good indicator for investment,” the minister said at a press conference in Islamabad yesterday. “Sustainability will happen as the forex reserves keep getting stronger and stronger.”
The State Bank of Pakistan may leave its benchmark interest rate unchanged if the government meets targets under an IMF program to draw inflows of as much as $3 billion by June, Hamza Ali Malik, director of the monetary policy department at the central bank, said in a Feb. 17 interview.
The rupee may soon stabilize amid concern its rally will threaten exports, according to Khurram Schehzad, chief investment officer managing stocks, bonds and commodities worth $150 million at Karachi-based Lakson Investments.
“Stability is more important than overappreciation of local currency,” he said by phone. “Overappreciation won’t benefit industries like textiles because then they wouldn’t be competitive with India and Bangladesh.”
Pakistan’s budget deficit in the last eight months narrowed to 3.1 percent of gross domestic product, Dar said yesterday, from 4.1 percent a year earlier.
“Reserves have improved and there is a sentiment shift,” said Farrah Marwat, head of research in Karachi at JS Global Capital. “You can see the government has picked up pace on all the commitments such as the Eurobond, privatization and the 3G auction.”-Bloomberg
