The gain by the rupee against the dollar was Rs 2.13 on Wednesday closing at Rs 221.94, down a whopping Rs18 from the low of Rs 239.9, reached on July 28. The stock market was following the currency, reaching 41,425 points, a rise of 356 points. This was partly fuelled by a global equity recovery, but there was sufficient domestic news to justify this increase.
One of the factors in this recovery was clearly the meeting held by the State Bank of Pakistan with the heads of banks and with foreign exchange dealers. However, one aspect has been the improvement in the trade deficit, which went down to $2.6 billion in July, a massive reduction both from the previous month of June, but year-on-year. At the same time, there is a definite contribution by the development of some form of political stability. One of the most pertinent settlements has been that of the Punjab, which has got a government that looks as if it will go the distance. For the first time, the government does not seem to be one judicial verdict away from falling. At the same time, the central government, though no doubt damaged by the loss of Punjab, does not seem in as imminent danger of falling as it once was.
If the central government can resist the temptation to celebrate, it can turn to the next phase, which will be that of consolidation. If it can continue to do so, such as pass on the cuts that will come as international fuel prices start coming down, it can hope to reap the political benefit at the next general election.
