Rupee likely to trade steady

November 28, 2021

KARACHI: The rupee is expected to trade within existing range against the dollar next week, supported by some respite in greenback demand from importers and expectations for receiving $3 billion...

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KARACHI: The rupee is expected to trade within existing range against the dollar next week, supported by some respite in greenback demand from importers and expectations for receiving $3 billion deposits from Saudi Arabia, dealers said.

The rupee retreated from an all-time low in an intraday trade on Friday. It closed at 175.46 to the dollar, compared with Thursday’s 174.98, after initially falling to a record low of 176.42.

“The local unit should consolidate at 175 levels against the dollar in the coming days. We expect the struggling rupee to get a reprieve due to ease in payment pressure” said a foreign exchange dealer.

“Moreover, the hope to get $3 billion in cash deposits from Saudi Arabia in a day or two will help ease worries on the balance of payments side, bolstering the forex reserves.”

The falling trend in the global oil prices is also expected to reduce the inflationary pressure and the import bill, which will aid to the current account deficit. Oil prices fell to $68 per barrel on Friday.

The declining foreign currency reserves and high current account deficit have spooked the market players. The country’s reserves dropped last week by $777 million or 3.3 percent to $22.7 billion, their lowest since April 2021.

The reserves held by the State Bank of Pakistan also fell by 4 percent or 691 million to $16.3 billion, the lowest level since June 25.

The SBP’s reserves are enough to cover around three months of imports.

The rupee has been under pressure amid the surging current account deficit, which reached $1.7 billion in October. It was in the surplus of $448 million a year ago.

The delay in the Saudi money and higher commodity prices also led to the weakness in the rupee.

The concerns about the potential impact of the fresh coronavirus variant found in South Africa also affected the investor sentiment across the world markets as well as in Pakistan.

Analysts expect the volatility in the domestic currency to be eased and managed to see appreciation in the rupee after the deposit coming in from KSA, as well as disbursements from the IMF and multilateral funds in January.

The issuance of Sukuk and lower oil and commodity prices are also likely to support the rupee in the coming months.

The latest Real Effective Exchange Rate (REER) numbers also show the undervalued local currency.

The REER index fell to 95.6 in October, a decline of 0.3 percent, compared with the previous month.

Cumulatively, REER has declined by 4.2 percent since June and 7.2 percent from its recent peak in April.



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