Rupee to remain stable next week

KARACHI: The rupee is expected to remain stable in the coming week, despite a delay in the final approval of a new $7 billion loan programme from the IMF for Pakistan, dealers said.

This week, the local unit moved in narrow ranges in the interbank market. Monday’s closing value was 278.41 per US dollar, while on Thursday it fell somewhat to 278.64. It did, however, regain some of the losses from earlier sessions to close slightly higher at 278.53 against the dollar on Friday.

“We anticipate that the rupee will continue to trade within the existing ranges next week due to an increase in foreign exchange reserves and positive sentiments amid an upgrade in Pakistan’s ratings from Moody’s,” a currency dealer said.

Pakistan’s foreign exchange reserves held by the central bank increased by $112 million to $9.403 billion as of August 23.

Pakistan is working to secure final approval from the executive board of the International Monetary Fund for a new $7 billion loan programme. This approval is delayed due to the pending confirmation of debt rollovers and bridging the country’s external financing gap.

Pakistan is also seeking approximately $4 billion in loans from Middle Eastern banks, with Saudi Arabia’s rollover of its previous debt still pending. Negotiations are ongoing for the continuation of the oil financing facility from Saudi Arabia. Recent reports indicate that Saudi Arabia has made an offer related to the Reko Diq project, and if Pakistani authorities accept this offer, it could facilitate both debt rollovers and additional financing.

On Wednesday, Moody’s Ratings upgraded Pakistan’s ratings to Caa2, citing the country’s improving macroeconomic conditions and moderately better government liquidity and external positions, which were previously at very weak levels.

“There is now greater certainty on Pakistan’s sources of external financing, following the sovereign’s staff-level agreement with the IMF on 12 July 2024 for a 37-month Extended Fund Facility (EFF) of $7 billion,” Moody’s said in a statement.

“We expect the IMF Board to approve the EFF in the next few weeks,” it said.

“Pakistan’s foreign exchange reserves have about doubled since June 2023, although they remain below what is required to meet its external financing needs. The country remains reliant on timely financing from official partners to fully meet its external debt obligations,” it added.

Analysts anticipate that the finalization of the IMF programme will have a significant positive impact on market sentiment. Until then, the rupee is expected to continue range-bound trading.

Market sentiment is likely to remain cautious until concrete positive news regarding the IMF deal emerges, despite expectations of lower inflation figures and an anticipated interest rate cut next month, according to analysts.

“The absence of forward selling will put the rupee under pressure, but the market does not expect much volatility in the currency next week. With the IMF deal still precarious, political managers are likely to maintain a tight grip on the rupee to avoid further instability,” said Tresmark in a note release last week.