Rupee breaks losing streak, gains Rs2.50 in interbank trade after govt begins rollback of fuel subsidy

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The rupee finally snapped its losing streak against the dollar on Friday, gaining Rs2.50 in interbank trade in the early morning hours after the government decided to lift the fuel price cap to comply with the conditions of the International Monetary Fund (IMF).

According to the Forex Association of Pakistan (FAP), the dollar was trading at Rs199.50 at 10:38am, after depreciating against Thursday’s close of Rs202.

The persistent decline in the rupee’s value since May 10 has been largely attributed to the country’s rising import bill, widening current account deficit and depleting foreign exchange reserves.

Since the PML-N-led coalition government took over on April 11, when the dollar was valued at Rs182.30, the greenback has risen by Rs19.

FAP Chairman Malik Bostan said that the rupee appreciated because of the government’s decision to end fuel subsidies. “We hope this will pave the way for a loan from the IMF and an agreement will soon be reached which will further ease the pressure on the rupee.”

It will also help boost foreign exchange reserves, he added.

Zafar Paracha, secretary general of the Exchange Companies Association of Pakistan, said that the overnight increase in fuel prices was a “strong step” in towards reviving the IMF programme.

“It is helping the KSE-100 recover some of its sharp losses earlier this month, and also giving confidence to the foreign exchange market,” he pointed out, adding that the markets were relieved that the “doomsday scenario of a default” would likely be avoided now.

On Wednesday night, the government raised the prices of all petroleum products by Rs30 per litre — the highest-ever increase in the prices of all petroleum products in one go — in a bid to rein in the fuel subsidies that had been a sticking point in talks with the IMF and resumption of a $6 billion facility, which has been stalled since early April.

An official earlier told Dawn that this was the first step towards convincing the IMF to release the next tranche of $1bn at the earliest.

Announcing the price hike, Finance Minister Miftah Ismail expressed the hope that now the exchange rate would improve, markets would stabilise, economy would balance out and investors would take the decision positively.

The finance minister said that with the Rs30 jump, ex-depot prices of petrol would increase to Rs179.86 per litre, high-speed diesel (HSD) to Rs174.15, kerosene to Rs155.56 and light diesel oil (LDO) to Rs148.31. Still, the government would be paying about Rs56.71 per litre subsidy on HSD, Rs37.84 on LDO, Rs21.83 on petrol and Rs17.02 on kerosene, he added.