Rupee expected to trade within narrow range next week

KARACHI: The Pakistani rupee is expected to remain in a narrow range next week, supported by a record monthly high current account surplus, the depreciation of the US dollar against other major currencies, and the country’s credit rating upgrade.

The local unit stayed range-bound, trading in the band of 280.46 to 280.71 against the dollar in the interbank market this week.

According to Tresmark, a financial terminal, while unusual developments are occurring in global financial markets, an even stranger situation is unfolding in Pakistan, which recorded an all-time high $1.2 billion current account surplus. Analysts anticipate a total surplus of $1.5 billion for the entire fiscal year, a milestone not seen in over two decades. The report indicates that a record current account surplus does indeed relieve pressure on the rupee. However, it is not solely this surplus that is contributing to the rupee’s strength. The dollar index has fallen below 100 and is poised to drop further toward 92. With an International Monetary Fund (IMF) deal in the pipeline and a favourable credit rating upgrade, the outlook for the rupee seems positive.

The real effective exchange rate (REER) has inched down to 101.6, keeping the currency at competitive levels.

“Yet, despite all this, FX reserves haven’t budged. Heavy outflows from T-bills and profit repatriations are keeping things tight. Which is why -- even with all the feel-good surplus vibes -- a managed depreciation (5 paisa a week) still makes sense,” it said.

“Every major economy is trying to quietly devalue in this escalating trade-and-tariff mess, and an overvalued currency is the last thing you would want to have,” it added.

The forex reserves held by the State Bank of Pakistan (SBP) dropped by $127 million to $10.57 billion during the week ended April 11 due to external debt repayments.

Fitch Ratings has upgraded Pakistan’s rating to ‘B-’ from ‘CCC+’, citing increased confidence in the country’s efforts to reduce budget deficits and implement structural reforms under the International Monetary Fund’s (IMF) loan programme.

Islamabad is expecting disbursements of $2.3 billion in two separate loans from the IMF: approximately $1 billion as the second instalment of the $7 billion bailout secured last year and $1.3 billion under the Resilience and Sustainability Facility (RSF), pending approval by the IMF’s executive board. Pakistan and the IMF reached a staff-level agreement in March on the first review of the country’s Extended Fund Facility (EFF) and a new arrangement, RSF.