Rupee tipped to resist pressure against dollar on IMF optimism

KARACHI: The rupee is expected to trade range-bound against the dollar next week as a result of increased chances of revival of the International Monetary Fund (IMF) programme, following Saudi Arabia's confirmation to the global lender that it would provide financial support to Pakistan.

Investors are also expecting the same funding commitment from the United Arab Emirates (UAE).

During the outgoing week, the rupee experienced significant volatility. After falling to an all-time low of 287.85 on Wednesday, it finished at 284.65 per dollar on Friday in the interbank market.

The State Bank of Pakistan (SBP) raised its benchmark interest rate by 100 basis points to 21 percent on Tuesday to rein in inflation.

The latest IMF loan optimism follows Finance Minister Ishaq Dar's assurance to the country that the IMF deal was on track, who stated that everything needed from the country to conclude the ninth review of a $6.5 billion loan programme with the IMF was "now complete" and the only thing left to be done was a confirmation of a $1 billion commitment from a friendly country.

The finance minister addressed the nation a day after canceling his trip to Washington for the IMF and World Bank's spring meetings, citing domestic political unrest as the cause.

“We expect the rupee to trade range-bound next week due to positive sentiments stemming from increased odds of IMF programme resumption,” said a currency dealer. “Although there will still be demand for the dollar from importers, it is anticipated that remittances would increase supply,” he added.

Saudi Arabia has confirmed to the IMF that it will provide Pakistan with $2 billion in assistance. The country is just seeking confirmation of a $1 billion promise from a single friendly country that is UAE, according to the finance minister. All of their prerequisites to finish the staff-level agreement will then be satisfied. Then, it takes additional two weeks to bring the issue up at the board meeting.

Pakistan’s foreign exchange reserves held by the central bank dropped by $36 million to $4.207 billion in the week ending March 31. The SBP’s reserves are enough to cover around one month of imports. The central bank attributed repayment of external debt to the decline in forex reserves. With low FX reserves, the central bank has been discouraging letters of credit for imports which are not essential. The government also increased the sales tax for import of many items from 19 percent to 25 percent, terming them “luxury”.

Import curbs have forced many companies to cut their production activities on the back of a shortage of import-based investory.

Commenting on external funding requirements, SBP governor at analysts’ briefing held after the monetary policy meeting on Tuesday said out of $23 billion debt repayment in FY3023, $18.5 billion had been repaid or rolled over.

Remaining external payments in the next three months of the fiscal year stand at $4.5 billion, out of which a $2.3 billion loan is likely to be rolled over. So, net external payment for the next quarter of the current fiscal year stands at $2.2 billion.

The central bank has revised its FY2023 current account deficit target from $10 billion at the start of the year to below $6 billion.