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Monday June 17, 2024

Rupee may regain some value on IMF deal

Market however does not expect any steep decline in the value of the dollar once the agreement is signed

By Our Correspondent
March 12, 2023
A foreign currency dealer counts US dollars at a shop in Karachi, Pakistan, May 19, 2022. — AFP/ file
A foreign currency dealer counts US dollars at a shop in Karachi, Pakistan, May 19, 2022. — AFP/ file

KARACHI: The rupee is poised to regain some of its value in the coming week in the hopes of an expected staff-level agreement between Pakistan and the International Monetary Fund (IMF).

Although the dollar closed slightly higher than the previous week, the currency market has its hopes pinned on an agreement with the IMF.

The market however does not expect any steep decline in the value of the dollar once the agreement is signed and the inflows of over $1.1 billion are disbursed by the IMF.

Rupee closed the week at 280.77 against the dollar, up from 278.46 in the previous week. During the week, dollar-rupee parity fluctuated either way because of inflows of $500 million from China and then the free float of currency after Pakistan agreed to leave it on the market forces.

Currency traders are now eyeing the IMF agreement as once it would be signed it could bring some stability in the market. The IMF team left Pakistan about a month ago, and since then, no agreement has been inked between the government and the Bretton Woods institution.

Instead, the IMF has laid down some more conditions for the government to meet before it releases the $1.1 billion tranche out of the $6.5 billion programme.

To meet some of those conditions, Pakistan had to increase its interest rate and hike additional surcharge on the electricity bills.

Finance Minister Ishaq Dar also has not given any specific date for the signing of the accord with the IMF and has only expressed the hope that it would materialise soon.

Currency market dealers said that delay in the signing of the agreement was resulting in the loss of confidence in the market, despite a market-based exchange rate. The inordinate delay has not been bringing much-needed confidence and stability in the financial market, which has been under stress for the last many months after the IMF programme was suspended.

They believed that the programme would be restored as the country has met almost all the conditions sans the assurances from friendly countries to boost the forex reserves.

Pakistan’s political situation has also been marring the financial market due to uncertainty over the Punjab elections. Political temperatures have risen sharply.

During the outgoing week, the country got some respite in the form of an increase in the foreign exchange reserves after inflows from China pushed the reserves, held by State Bank to over $4 billion. Pakistan’s forex reserves had been on a declining trend during the past several weeks. The country’s reserves are sufficient to cover hardly a month’s imports.

Remittances too showed some gains in the month of February compared to the preceding month of January; however, it recorded a more than nine percent decline on year-on-year basis.