Rupee could weaken by up to five percent this year: analysts

KARACHI: Pakistan’s rupee could lose 4-5 percent of its value against the US dollar this year but annual depreciation of such levels could be seen as a positive trend, analysts said on Saturday.

They said the rupee, which fell 4.2 percent during the last year, could gradually depreciate over the year. The rupee/dollar parity is likely to hover at 107 by end March 2016 and at 109 the following quarter.

There are chances that the currency will trade at 110 against the US currency during the last two quarters of 2016. The rupee quoted at 104.74 to a greenback in the interbank market on December 31, 2015.  

Dr Salman Shah, former finance minister, foresees the rupee to shed almost five percent its value in 2016.

“There is unlikely to see major downside pressure on the exchange rate,” Shah said. “The key underlying assumption is that the improvement in balance of payments position (a low current account deficit on account of cheap oil imports, robust foreign inflows and strong growth in remittances) will continue.”

 Shah said over all macroeconomic indicators seem to be improved. “I don’t see any threat to cost-push inflation stability… the consumer price index inflation will stay between 4-4.5 percent this year due to stability in the oil and other commodity prices,” he added.     

“Moreover, Pakistan is in a better placed in Asian markets to weather any storm in global financial markets due to its limited exposure to these markets.”

Eman Khan, an analyst at Tresmark Research the real challenge, the government will face, will be to manage the cash flows as inflows from the International Monetary Fund (IMF) will dry up and the Euro bonds worth $500 million will need to be repaid in March.

“The CPEC (China Pakistan Economic Corridor) and other related investments in power projects, the government's planned privatisation drive and a softening current account deficit may add support to the rupee,” Khan said.

Pakistan’s FX market witnessed short episodes of volatility during the last year but overall it remained relatively stable compared to previous years.

An improved balance of payment position and the record high foreign currency reserves of $21 billion supported the rupee last year. The central bank’s reserves touched $16.171 billion, sufficient to cover more than five months of the country’s imports.

The IMF disbursements under the Extended Fund Facility programme, inflows from the World Bank and the government’s successful issuance of Sukuks that fetched $1.0 billion from the international market and HBL divesture also contributed to the rise in country’s reserves.