Rupee to remain range-bound against dollar next week

By Our Correspondent
March 26, 2023
Representational image of a money dealer counting rupee notes. — AFP/File

KARACHI: The rupee is expected to be range-bound in the coming week, depending on the demand and supply of the greenback. Market participants will also be keeping an eye on Pakistan’s progress towards securing a bailout deal with the IMF.


This week the rupee traded in the range of 283-284 per dollar in the interbank market. It closed at 284.03 on Monday, but on Wednesday it gained strength and ended at 283.20 to the dollar. Only three forex trading sessions were held. For the purposes of the Zakat deduction, the currency market was closed on Friday, the first day of Ramazan, and on Thursday, Pakistan Day.

“The forecast for the rupee depends on the dollar’s supply and demand situation. The rupee is not likely to experience a significant change next week because importers’ demand remained normal and supplies are improving as a result of remittances sent by Pakistanis living abroad during the holy month of Ramazan,” said a currency dealer.

“Although the State Bank of Pakistan has eliminated the cash margin requirement for imports, this decision’s effects on the dollar demand will be felt beginning after March 31,” the dealer added.

The real effective exchange rate (REER) for the month of February came in at 86.45, but in a situation where dwindling foreign exchange reserves are the main issue, REER is irrelevant.

The country’s foreign exchange reserves held by the central bank increased by $280 million to $4.598 billion in the week ending March 17. The SBP’s reserves are enough to cover one month of imports. The SBP attributed a $500 million loan refinancing from China to the increase in foreign exchange reserves.

As a result of the central bank purchasing dollars on the interbank market to increase reserves, some analysts predict that the rupee would lose some ground next week.

“Looking at how central bank is managing FX, it will frequently go and buy dollars at higher rates to bolster its reserves. So even though remittances have increased, rupee will have temporary overruns past the 286/$ figure in the coming week,” said Tresmark in a note on Saturday.

“Analysts we spoke to don’t think the import position will get any better in the short-term,” it added.

Pakistan has been engaged with the IMF continuously for the last few years and it would seem that a staff level agreement (SLA) is around the corner. Keeping the global crises in perspective, Pakistan should go all out to build this bridge, it noted.

However, news flow suggests that the SLA is nowhere near. IMF wants assurances not only from friendly countries but also from multilateral donors before they table an offer. The quantum of ‘sufficient financing’ that the IMF is looking for is estimated to be between $5-7 billion.

“A few senior bankers we spoke to disagreed that ‘Saudi money is off the table’, but added that getting assurances from bilaterals and multilaterals is an exhaustive process. In a poll undertaken by Tresmark of traders, 78 percent opined that the SLA will not come through before mid-April,” it said. With at least $3 billion in external debt repayments by June, any delays in the IMF pact will heighten talks about restructuring and haircuts.

“The fact that the MoF (ministry of finance) has increased cut-off yields - implying an increase in policy rates, signifies that the IMF deal is still alive and kicking,” said Tresmark.