Rupee likely to trade within narrow ranges next week

KARACHI: The rupee is expected to remain range-bound next week, driven by optimism following the completion of the first review of the $7 billion loan programme from the International Monetary Fund, along with healthy remittances associated with Ramazan.

“The IMF and Pakistani authorities made significant progress towards reaching a staff-level agreement (SLA) on the first review under the 37-month Extended Arrangement under the Extended Fund Facility (EFF),” the IMF said in a statement issued on Saturday.

“Progress has also been made in discussions on authorities’ climate reform agenda, which aims to reduce vulnerabilities from natural disaster-related risks, and accompanying reforms which could be supported under a possible arrangement under the Resilience and Sustainability Facility (RSF), it said.

“The mission and the authorities will continue policy discussions virtually to finalise these discussions over the coming days.”

In the interbank market this week, the rupee closed at 280.07 per dollar on Monday but lost ground, finishing at 280.22 on Friday.

In a client note, Tresmark, a financial terminal, commented that the unexpected decision to maintain the current monetary policy should have strengthened the rupee. However, the local currency weakened. Several reasons contribute to this situation. Firstly, there has historically been some volatility during the IMF review process. Secondly, foreign exchange reserves have been under pressure, although they remain largely stable around the $16 billion mark. Lastly, regional currencies are experiencing steady declines, with the Indian rupee briefly hitting 87 per dollar.

“But what really is happening in the bazaar is that inflows from remittances are pouring in due to Ramazan; these will continue till Eid. Dollar liquidity has improved, which is reflected in higher premiums. Import pressure has eased significantly from last month, thanks to lower oil prices and reduced cotton imports,” Tresmark said.

The report, citing analysts’ expectations, indicated that an IMF staff-level agreement is expected to be signed before the end of the month. This agreement would unlock a $1 billion tranche, along with climate resilience financing and other multilateral programs. Also, a re-rating of country risk and improved access to external funding are likely in the future. The current account is anticipated to hover near equilibrium for February and March.

“While there is merit in controlled depreciation by letting the rupee weaken by 5-10 paisa every week, we do not expect any substantial pressure, and at this point forward booking till the three-month horizon looks more feasible,” it said.