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The rupee appreciated for the second consecutive day against the US dollar, gaining another 0.27% in the inter-bank market on Tuesday.

As per the State Bank of Pakistan (SBP), the PKR closed at 174.30 against the USD after a day-on-day appreciation of Rs0.47 or 0.27%. The gain comes after PKR appreciated by Rs0.47 or 0.27% on Monday as well.

The gains come after Pakistan finally reached a staff-level agreement with the International Monetary Fund (IMF) on Monday, providing much-needed clarity to the currency market.

Completion of the review would make available SDR 750 million (about $1,059 million), bringing total disbursements under the Extended Fund Facility (EFF) to about $3,027 million, said the IMF in a statement.

“The uncertainty over the IMF front is over — there is also a clear position on the discount rate, which has created clarity on the macroeconomic end,” Sana Tawfik, an analyst at Arif Habib Limited (AHL), told Business Recorder.

Pakistan's rupee gains on account of IMF announcement

The analyst expected more room for appreciation for the PKR, amid an anticipated drop in the Real Effective Exchange Rate (REER), “which is expected to be around 93-95.”

She added that successful negotiations with the IMF would unlock funds from other international lenders including the Asian Development Bank (ADB) and World Bank, “to the tune of $1.4 billion, which will ease off pressure on the rupee.”

Speaking on the interest rate, Tawfik said the higher-than-expected hike will renew interest in the bond sector.

On Friday, the SBP raised its key interest rate by 150bps, a measure taken to curb accelerating inflation, controlling the widening current account deficit, and supporting the rupee against the US dollar.

The analyst highlighted that the government needs to take measures to curtail imports, and reduce the widening current account deficit.

This article was first pubished in Business Recorder on Nov 23, 2021