Rupee likely to remain range-bound next week

KARACHI: The rupee is anticipated to remain range-bound versus the dollar next week, despite a decline in foreign exchange reserves and upcoming meetings of International Monetary Fund (IMF) missions with Pakistani officials to address climate resilience funding and review the ongoing $7 billion bailout.

This week, in the interbank market, the rupee moved within a narrow range, trading between 279.20 and 279.26 against the dollar.

“Reserves have declined consistently over the last few weeks. Reserves and the IMF have created reasonable doubt in the minds of traders for a weaker rupee,” said Tresmark in a client note on Saturday.

“Even though premiums have firmed up substantially (1-, 3-month trading at 150 and 340 paisa), very few exporters are selling in forwards. However, opinion from analysts remain unchanged that any speedy depreciation will not take place, and the rupee remains range-bound,” it added.

The report sees the next few weeks will be critical in determining how Pakistan’s economy moves forward. A successful IMF review could open doors to fresh inflows and provide some breathing space. It will also pave the way for favourable rerating of country risk.

Pakistan is gearing up for another round of IMF negotiations, with multiple teams arriving to review the $7 billion Extended Fund Facility (EFF) and assess an additional $1 billion in climate resilience funding.

The depth of this scrutiny has markets on edge, as the outcome will not only shape economic policies but also influence investor sentiment and financial stability in the months ahead, according to the report.

“For now, some economic indicators suggest a temporary reprieve. The rupee has held steady, inflation has dipped to a 9-year low of 2.4 per cent, and remittances jumped to $3 billion in January 2025, with an expected further boost in Ramadan,” it said.

“Exports are showing resilience, contributing to Pakistan’s fourth consecutive current account surplus. However, pressure points remain, especially as foreign exchange reserves have dropped to $11.17 billion despite the central bank’s efforts to shore them up through market purchases,” it noted.

With the recent slowdown by the SBP in cutting rates, markets are of the view that interest rates are near their bottom, with another 100bps rate cut in the next MPS before a long pause, it said. “Flows have become better in the last week, and with the country running a marginal CA surplus, it’s unlikely that the IMF will insist on weakening the currency.”