The Pakistani rupee showed signs of steadying on Friday after steep decline over the previous two days, with hopes raised by an International Monetary Fund team visiting Islamabad in coming days to discuss resuming disbursements from a bail-out package.

On Thursday, the Pakistani rupee fell 9.6% against the dollar in the inter-bank market, the biggest one-day drop in over two decades, a day after foreign exchange companies removed a cap on the exchange rate.

But on Friday, the rupee recovered from an early drop of 1.8% to stand just 0.2% down trading between 255-259 rupees per dollar.

In the open market, the rupee fell 1.1% to trade between 263-265 per dollar, according to the data and Exchange Currency Association of Pakistan.

The exchange companies' removal of the cap should move Pakistan closer to the market-determined exchange rate regime that the IMF favours, though the multilateral lender also wants to see fiscal measures from the government to reduce the budget deficit.

Hours after the rupee was left to the market forces to decide its worth, the IMF announced that its delegation will be visiting Pakistan from Jan 31 to Feb 9 to discuss its 9th review of a bailout package agreed for $6 billion in 2019, and topped up to $7 billion last year.

"As we have seen the announcement, and the IMF program is resumed, we should be, God willing, good," former finance minister Miftah Ismail told Geo TV, adding that it will head off the risk of Pakistan defaulting on its external obligations.

Disbursements from the package were suspended in November, due the lack of progress on fiscal consolidation, hastening Pakistan's slide deeper into a balance of payments crisis, with foreign exchange reserves currently only able to cover three weeks imports. (Reporting by Ariba Shahid in Karachi and Asif Shahzad in Islamabad; Editing by Simon Cameron-Moore)