No major shifts expected as rupee continues to trade in narrow range

KARACHI: The rupee is likely to continue a range-bound trading pattern against the dollar next week amid lack of any fresh triggers, traders and analysts said on Saturday. The local unit fluctuated slightly in the interbank market from 283.39 to 283.84 per dollar during the outgoing week. Due to the markets being closed for Eid ul Fitr, the week had only three trading sessions. The market was flooded with dollar liquidity thanks to a $654 million current account surplus in March 2023, and higher-than-expected remittances during Ramazan and the Eid festivities. However, a tense political climate forced the rupee to show restraint.

“We think the rupee will trade range-bound next week depending on the demand and supply of dollars in the market,” said a foreign exchange trader. As long as no triggers materialise, it is expected that the rupee would maintain its current pace. Anything that could confirm or jeopardise the re-engagement of the International Monetary Fund (IMF) would serve as the trigger, Tresmark, a financial terminal said in a note. The domestic currency would strengthen if the IMF moves forward, but only momentarily. If the IMF didn’t proceed, it would be challenging to predict where the rupee to stabilise, it added. “The current account looks to be surplus in April as well with remittances expected to post above the $2.5 billion mark. Swap premiums are trading at staggering levels of 350 and 750 paisas (1, 3 months respectively) and yet, there are just a handful of exporters selling dollars forward, and those that are, are all under 1-month tenors,” the note said. Market confidence has been broken by disorderly interruption of imports, weak global demand, political upheavals, and continued IMF uncertainties. Even though major import restrictions have been eased, there isn't much interest in starting up new letters of credit. “Pakistan’s forex reserves topped the $10 billion mark once again after about four months, but still no rupee bulls are to be seen,” said the Tresmark report. “Market is also factoring in the $4.2 billion to be paid till June end. While most of these obligations are expected to be rolled over, at least $650 million in financial charges are certain to be repaid.”

In fact, the future of the rupee and other macroeconomic indicators including financial stability and economic growth are now dependent on the IMF programme's ability to resume. While there doesn't appear to be any justification for further delaying the programme, it appears that the fate of the IMF is tied to political stability, which isn't getting any better, according to analysts.

The first shipment of oil from Russia to Pakistan is being eagerly watched by analysts. According to reports, India and China are both purchasing Russian oil at $45 per barrel (Brent closed at $78.40). Pakistan is anticipated to be making purchases at or near these levels, most likely below the $60 ceiling for euros. It can significantly affect Pakistan's inflation trends in the upcoming months.