Rupee poised for further consolidation amid IMF loan agreement

KARACHI: The Pakistani rupee is expected to remain stable in the short to medium term due to positive sentiment after the country reached a new $7 billion loan deal with the International Monetary Fund (IMF) to support the struggling economy and manage its growing debts, analysts said on Saturday.

This week, the rupee stayed in a narrow range while gaining a lot of positive news. On Monday, the rupee ended at 278.5 per dollar in the interbank market. It closed at 278.4 on Friday.

Remittances from Pakistani citizens employed abroad increased to $3.2 billion in June, up 44 percent from a year earlier. The central bank’s foreign exchange reserves have been maintained at $9.4 billion over the past two weeks. The rupee-dollar parity has stabilized just below 280, after peaking at 307.5 in June 2023.

Pakistan has achieved a breakthrough by signing a new 37-month Extended Fund Facility (EFF) with the IMF. This significant achievement comes after the stabilization measures taken by the government along with the successful conclusion of the last standby arrangement (SBA) of $3 billion back in April this year.

The deal is now subject to approval by the IMF Executive Board.

“Reducing inflation, deepening access to financing, and building strong external buffers are key to development and resilience,” the IMF said in a statement.

“Monetary policy will continue to be focused on supporting disinflation, which will help protect real incomes, especially for the most vulnerable,” it added.

“To buffer against shocks and build reserves, the State Bank of Pakistan (SBP) will maintain a flexible exchange rate and continue to improve the functioning of the foreign exchange market and the transparency around FX operations,” it said.

The signing of the new EFF programme has emerged as a significant and positive development, securing and supporting the external sector outlook in the long term, said Arif Habib Limited in a note.“We anticipate the Pakistani rupee (PKR) to remain stable in the short to mid-term driven by a positive sentiment arising from the new programme,” it said.

Tresmark believes with the unexpected early announcement of the IMF staff-level agreement, the rupee is poised for further consolidation.

“These expectations are supported by expectations of increased hot money, additional multilateral inflows, and higher export proceeds. The equity markets, already near record highs, are likely to receive an additional boost,” said Tresmark in a weekly report.

“However, the market is not expecting any substantial gains with the rupee expected to stay around the 278/$ level,” it added.

In response to these adjustments, premiums for 3-6 month tenors have risen. “While last week saw some forward selling by exporters, the coming week is expected to bring substantial market inflows. Exporters are likely to find the 1-3 month tenor range particularly attractive for selling.”