Rupee seen range-bound next week

KARACHI: The rupee is expected to continue its range-bound tone in the week ahead, with traders closely watching Pakistan’s central bank monetary policy meeting on Monday for clues about the local currency outlook.

The rupee closed at 279.77 per dollar in the interbank market on Tuesday, but it weakened further, ending at 279.97 on Friday. The markets were closed on Monday for a bank holiday due to the deduction of Zakat.

“Depending on the demand and supply of dollars, the local currency is likely to trade within the current range and is not expected to drop below the 279 level in the coming sessions. The market will be influenced by the State Bank of Pakistan’s (SBP) interest rate decision, which will be announced on Monday,” a currency dealer said.

Tresmark, in a client note on Saturday, said that with real interest rates already exceeding 10 per cent, a rate cut is not just warranted -- it is urgently needed. Even on a forward-looking basis, inflation is expected to average 3.75 per cent till June 2025 and 4.9 per cent till December 2025.

However, core inflation remains around 8.0 per cent on a forward basis, and the central bank will be monitoring this closely.

Global energy prices are on the decline, with Brent crude dropping to $69.3 per barrel, marking a three-year low, it said.

Recent auction results and trade flows indicate that traders are preparing for the possibility of no rate cut. Their reasoning includes several factors: the SBP has already reduced rates by 1,000 basis points (bps) in the past eight months. Most analysts believe the bank will pause to assess the effects of these cuts before making further decisions.

The financial stability observed has not stemmed from real reforms; there has been no broadening of the tax base, no significant revenue improvements, and no privatisation of loss-making entities. All these measures are essential for long-term sustainability.

“An ongoing IMF review will keep the stakeholders extra prudent. The foreign exchange reserves are declining, and the latest current account showed a deficit -- interest rates need to be kept high to keep the rupee attractive,” it said.

“While all this is true, the central bank will juggle economic expectations with business sentiment. Breaking the rate-cut streak risks pushing yields up by 25-40bps -- exactly the opposite of what’s needed,” it added.

However, a Tresmark poll shows that 58 per cent of participants anticipate a 100bps rate cut.