IMF talks put rupee on the edge

KARACHI: The rupee is likely to face more pressure against the dollar until the International Monetary Fund completes its first review of the country’s $3 billion

loan program, a report by a financial terminal said Saturday.

The rupee has depreciated by about 2 rupees, or 0.60 percent, to the dollar this week, ending at 287.03 on Friday, after closing at 285.29 on Monday. The foreign exchange market was shut down on Thursday for a public holiday.

The IMF’s mission began its review of Pakistan’s bailout package on November 2 and is expected to conclude by December 15.

The review will determine whether Pakistan will receive the second tranche of $700 million in December. The country received $1.2 billion in July from the IMF as the first installment of the standby arrangement.

“Although there will be pressure on the rupee till IMF is here, analysts are not expecting it to trade above 290 in the interbank market," said financial terminal Tresmark said in a client note.

"In our opinion, the government will use the IMF approval, once received, to strengthen the rupee towards the 280 level.”

Tresmark said the rupee is under pressure as export proceeds have dwindled and the central bank is buying dollars to boost its reserves to meet the IMF’s requirements.

Forward premiums have marched higher with one, two, and three-month premiums reaching 315, 500, and 725 paisa.

"This is due to a combination of several factors the SBP winding down its forward book (SBP forward book has decreased from $4.5 billion in June to $ 3.5

billion in September, in accordance with IMF’s wish list."

In spite of these attractive premiums, exporters are not interested as they weigh in the geo-political risks in the region and also wait till IMF’s stance on the next tranche becomes clearer, it noted.

Tresmark said it is not unexpected that the IMF expressed alarm about the currency's rapid devaluation and asked the government about its plans for stabilising it.

"There has been tremendous hard work in reversing the rupee’s trend from 314 to 275 and this hard work should not go to waste by letting it depreciate again mindlessly."

The latest remittance figures, together with improving market sentiment and hopes for further improvement in the balance of payments, lend credence to the belief that the rupee would soon settle.