The local currency staged a steep recovery on Wednesday and appreciated to Rs173.1 against the US dollar in intra-day trading in the inter-bank market after Saudi Arabia agreed to provide a $4.2 billion lifeline to Pakistan on an annual basis in the shape of cash assistance and oil on deferred payments.
Late on Tuesday, Riyadh announced to deposit $3 billion in the State Bank of Pakistan along with an oil facility worth $1.2 billion on deferred payments to aid the local economy and ease the pressure off foreign exchange reserves.
According to the State Bank of Pakistan, the local currency had closed at Rs175.27 against the greenback on Tuesday.
Speaking to The Express Tribune, Arif Habib Corporation Managing Director and CEO Ahsan Mehanti said that the local currency rebounded sharply against the US dollar due to upbeat announcement from Saudi Arabia to deposit $3 billion in the central bank.
“The news flow was cherished by all markets and it is positively impacting the foreign exchange segment,” he said. “Moreover, sentiment recovered in all markets including financial, fixed income and equity segments.”
He added that persistent recovery in rupee can reduce the prices of petroleum products in the country. The gap between demand and supply of dollar is far higher than $3 billion assistance announced by Saudi Arabia, he pointed out.
Therefore, the local currency needs to appreciate by a substantial margin to deal with the inflationary pressure, Mehanti said. The oil facility is also expected to lend support to the local economy, the analyst added.
Echoing his views, Alpha Beta Core CEO Khurram Schehzad stated that the optimistic announcement from Saudi Arabia last night had a psychological impact on the market spirits and helped relieve pressure off the local currency.
“Pakistan imports oil worth nearly $15 billion per year and Saudi oil facility will help meet a small share of this value,” he stressed. “Dollar outflow is expected to reduce as well.”
With appreciation in the local currency, both analysts expected inflation to decline.
“Recovery in rupee will partly decrease the import bill and ease pressure off reserves,” they said.