Rupee eyes gains on IMF loan, but downside risks linger

KARACHI: The rupee is expected to strengthen against the dollar in the coming week on hopes that the International Monetary Fund’s board will approve the next tranche of $700 million for Pakistan under its $3 billion stand-by arrangement, analysts said.

The rupee gained ground against the dollar in the interbank market during the outgoing week. The rupee finished at 285.64 against the dollar on Monday, but it appreciated and ended the week at 284.97. For the week, the rupee gained 0.23 percent versus the dollar.

Tresmark, in its weekly note issued on Saturday, said the rupee marginally strengthened, even though the two factors cited for its strength were quite immaterial, which are: the country’s foreign exchange reserves rose by $91 million and the trade deficit shrank by 33 percent on a year-on-year basis in November. In the trade deficit area, the lion's share was a reduction in imports and not an increase in exports, which is quite disappointing.

“Continuing the news flow trend, the market is widely expecting the IMF board of directors to approve the second tranche on Thursday. Though the amount is a mere $700 million, it could drive USDPKR to the 280-282 level, at which level, the Central Bank will resume dollar buying to bolster its reserves,” said the Tresmark.

According to analysts, the rupee's recent rally is a response to recent positive economic data and events.

The latest data showed that the foreign exchange reserves held by the State Bank of Pakistan increased by $77 million to $7.257 billion in the week ending November 24. The country’s total reserves rose by $91 million to $12.393 billion. The reserves of commercial banks are also up by $14 million to $5.136 billion.

Saudi Arabia has recently extended the term of a $3 billion deposit it placed with the SBP for another year. The deposit is set to mature on December 5.

The Saudi deposit renewal will help maintain the cash-strapped country’s foreign

reserves and deal with external account issues.

According to a Topline Research survey, 38 percent of participants who answered a question about the interbank market's exchange rate outlook by 2024 expected the PKR/USD parity to be between Rs290 and 310, 31 percent expected it to be around Rs270 and 290, and 29 percent expected it to be between Rs310 and 330. Just 2 percent of responders think it will be less than Rs270. Nobody anticipates it to surpass 330.

According to Bloomberg, the rupee is expected to finish the year as Asia's worst-performing currency, with losses predicted to last until 2024.

“The currency has fallen about 20 percent against the dollar this year and analysts say its troubles are far from over. BMI expects the currency will weaken to 350 rupees per dollar by the end of next year, while Karachi-based brokerage Topline Securities Ltd. sees it depreciating to 324 rupees per dollar,” it said.