Rupee likely to rebound on expected inflows from AIIB

KARACHI: The rupee closed the outgoing week weaker against the dollar, with an expectation to rebound next week as market participants in the foreign exchange market track the impact of key interest rate hike by the central bank and expected inflows of $500 million from the Asian Infrastructure Investment Bank (AIIB) next week.

The local unit fell by 0.12 percent versus the greenback during the outgoing week. In the interbank market, the rupee ended at 223.66 per dollar on Monday and at 223.94 on Friday.

The State Bank of Pakistan (SBP) raised its benchmark interest rate by 100 basis points to 16 percent in an effort to tame high inflation. However, according to some experts, the increase in interest rates was influenced by the International Monetary Fund (IMF). “Looks like SBP is more concerned with rising inflation,” said Mohammed Sohail, CEO of Topline Securities on his official Twitter handle.

Moreover, IMF talks for the next tranche are underway and are delayed, which may have also compelled the committee to take this step to fight inflation, Sohail added.

“There are some positive market triggers right now and we will observe how the market responds to these positives,” said another analyst. As a result of the central bank's confirmation that the $1 billion Eurobond repayment that is due on December 5 will be made on December 2, concerns regarding the country's inability to meet its financial obligations on time appear to be reduced, he said. “This repayment will not have any impact on foreign reserves as the funding has already been arranged,” the SBP said at an analysts' briefing held after the monetary policy meeting on Friday.

The central bank also said $500 million inflows from the AIIB were most likely to arrive on Tuesday next week.

Commenting on the expected reserve position by FY2023-end, the SBP said that it would remain largely dependent on the planned inflows, outflows, and rollovers; however, will be much higher than the current level.

During November, $1.8 billion was repaid, which was mostly against commercial loans, according to the SBP.

The SBP said Pakistan is expecting external flows from multilateral (such as World Bank, Asian Development Bank, Asian Infrastructure Investment Bank, and others), bilateral and other sources. Despite some positives, the rupee weakening doesn’t seem to end soon, according to Tresmark weekly client note. “While there has been a material cut in CAD [current account deficit] in July – October FY2023, the next three months are going to pose a significant challenge. November, December, and January are typically high import months and with a sharp decline in remittances and mild decline in exports, the CAD figures for the 3 months is approximately $2.9 billion (revised estimates),” it said. The rupee/dollar parity could test previous highs if the pressure on the forex reserves is not eased, it noted.