Rupee expected to remain stable next week as traders await fresh triggers

KARACHI: The rupee is expected to remain stable in the coming week due to a lack of fresh triggers and a balanced demand and supply for dollars in the currency market, dealers said.

In the interbank market this week, the rupee traded within narrow ranges, closing at 278.63 per dollar, dropping to 278.73 on Wednesday, and finishing slightly stronger at 278.55 on Friday after rebounding from losses.

Currency dealers anticipate the local currency to continue fluctuating by 20-30 paisas against the dollar until the IMF’s executive board gives final approval for a $7 billion loan programme for Pakistan. The market's dollar liquidity appears to meet importer demand.

Tresmark, a financial terminal, noted in a client note on Saturday that with the recent affirmation from the finance minister regarding commitments from China and the United Arab Emirates, the path to the IMF board’s approval seems clear. This has improved Pakistan’s credit default risk and Eurobonds and is likely to impact the country’s rating positively. However, questions remain about how the rupee will perform in the short and long term.

Referring to the stronger case for the rupee, it said the IMF’s board is expected to approve Pakistan’s 37-month loan programme by the end of this month. The governor of the State Bank of Pakistan reaffirmed that the external position is largely under control.

Remittances from Pakistanis employed abroad continue to hover around $3 billion each month. Analysts also believe that Pakistan will be able to successfully launch a series of Panda bonds, strengthening its forex position.

The market anticipated that Pakistan’s debt securities would continue to attract international investors, as seen by the approximately $175 million that flowed into Treasury bills last month. The central bank’s forex reserves remained stable at $9 billion, and exports are increasing. It is estimated that the real effective exchange rate hovers around the 101 level.

According to Tresmark, there are a few reasons, nonetheless, that support a weaker rupee. The largest factor undermining confidence is said to be political unrest.

Fears of a US recession stem from the possibility of low demand and currency recalibration. The local currency has lost appeal due to falling interest rates, and this trend is expected to continue.

“Pakistan needs to boost growth, which will lead to larger imports and a bigger forex appetite. We expect the rupee to gradually weaken post-IMF pact,” it said.