Rupee expected to remain under pressure next week

KARACHI: The rupee is anticipated to face some pressure next week because of the demand for dollars needed for debt servicing, as well as year-end import payments and other obligations, according to a report released on Saturday.

However, the local currency is expected to stabilise next year, primarily due to continued healthy growth in remittances, which are projected to reach $38 billion in the calendar year 2025.

The rupee ended during Monday’s interbank trading session at 278.18 to the US dollar. But it lost further ground, closing at 278.41 on Friday.

Pakistan reported a $729 million current account surplus in November. This contrasts with a $148 million deficit in November 2023 and a $346 million surplus in the prior month. The country posted a current account surplus of $944 million in the first five months of the current fiscal year, compared with a shortfall of $1.67 billion over the same period last year.

On Monday, the State Bank of Pakistan (SBP) cut the policy rate by 200 basis points to 13 per cent.

Pakistan’s foreign exchange reserves held by the central bank rose by $31 million to $12.081 billion as of December 13. The country’s forex reserves increased by $32 million to $16.633 billion. The reserves of commercial banks rose by $1 million to $4.551 billion.

“Last week we saw the rupee coming under pressure and swaps collapsing. The market is talking about huge payments going out in the form of debt servicing and year-end strategic payments,” said Tresmark in a report.

“We will continue to see these outflows till December 27. Even though these payments were made, reserves still grew by $32 million, as the SBP funded these payments by doing buy-sell swaps. Hence, the collapse of swap premiums,” it added.

Analysts expect swaps to recover materially in early January as the buy-sell swap pressure fades and as FE loans start maturing, according to the report.

They expect exporters to start selling forwards as soon as premiums permit, as the local currency is expected to remain stable even though the real effective exchange rate clocked in higher around 102.92.

“One leading reason for maintaining a stable rupee outlook is further improvement in remittances. We expect monthly remittances to increase by another $250 million per month on the back of the new non-filer tax law and continued weak appetite for imports,” it said.

“This could take remittances to a massive $38 billion in the calendar year 2025 by adding $3 billion more,” it added.