KARACHI: The Pakistani rupee is expected to stay range-bound against the dollar for the next week as traders seek cues on the central bank’s interest rate decision, which is due on November 4.
The rupee traded in the interbank market between 277.6 and 277.9 this week, and currency dealers expect the local unit to remain around its current level in the coming sessions as market players await the State Bank of Pakistan’s stance on the upcoming monetary policy.
The rupee closed at 277.68 to the dollar on Monday, and after losing value, it ended the day at 277.84 on Thursday. On Friday, though, the rupee bounced back from its losses and finished at 277.64.Most analysts and surveys conducted by brokerage houses expect the SBP’s Monetary Policy Committee to cut the policy rate by 200 basis points (bps). This would mark the fourth consecutive cut since June and bring the total reduction to 650 bps.
The SBP had previously cut the policy rate by 350bps in July and September 2024, resulting in a cumulative reduction of 450bps since June 2024.Dealers said that a steady rise in foreign exchange reserves and persistent improvement in the external account will also keep the rupee stable in the coming sessions.
The reserves held by the SBP increased by $18 million to $11.04 billion as of October 18. However, the country’s forex reserves fell by $94 million to $16.017 billion. Moreover, the reserves of commercial banks dropped by $112 million to $4.976 billion.
Pakistan’s current account recorded a surplus of $119 million in September. This marks the second consecutive monthly surplus following a surplus of $29 million in August and a deficit of $218 million in September 2023.
During the first quarter of fiscal year 2025, the country’s current account deficit decreased to $98 million, down 92 per cent from a year earlier.
While trade action suggests that the market is expecting a rate cut higher than 200bps, it seems unlikely, as the SBP will want to be cautious during this phase of economic stabilisation, said Tresmark in a note on Saturday.
“With interest rates dropping, we’ve seen a notable $74 million outflow of T-Bills from SCRA [Special Convertible Rupee Account] accounts] as of October 11),” it said.“Swap premiums have also taken a nosedive, leaving exporters with little incentive to lock in forward deals,” it added.
The SBP’s liquidity statement issued on August 31 suggests that the central bank did conduct around $300 million of sell-buy swaps to support premiums but these seem to be too little to create a sustainable impact, it noted.
“Interestingly, Pakistan’s reserves position shows a steady decline in forex held in private banks over the last three weeks, signalling that investors are ditching dollars for more appealing assets, especially as the latest REER clocked in under 100 (98.5) and shows that the markets are under no pressure to let the rupee weaken,” it said.