Rupee seen trading range-bound next week

KARACHI: The rupee traded within a narrow range this week and is expected to maintain this trend in the coming sessions. Investors are likely to avoid taking new positions ahead of the International Monetary Fund’s (IMF) $7 billion loan review on May 9.

On Monday, the rupee ended weaker at 281.06 against the dollar in the interbank market. However, the local currency gained little ground, increasing to 281.02 on Tuesday. It erased the previous session’s gains, closing at 281.05 per dollar on Friday.

Dealers said the local unit is expected to trade in narrow ranges. The interest rate announcement from Pakistan’s central bank, which is scheduled for Monday, will play a role in determining the rupee’s future course.

Analysts and markets expect a modest rate cut in interest rates in light of the sharp decline in inflation. However, some analysts think risks to Pakistan’s economy from global trade disruptions, geopolitical tensions, and inflation concerns will likely keep the State Bank of Pakistan (SBP) cautious at its upcoming policy review. The SBP kept its benchmark interest rate unchanged at 12 per cent in March.

“The SBP is not reaching for the exchange rate lever to drive competitiveness -- and that’s a good thing. Instead, we’re seeing a controlled depreciation of about 5-10 paisa per week. Expect this gradualism to continue,” said Tresmark in a note.

The SBP’s foreign exchange reserves increased by $9 million to $10.21 billion in the week ended April 25. However, the total liquid foreign reserves held by the country dropped by $184 million to $15.252 billion. The reserves of commercial banks also fell by $193 million to $5.037 billion. The favourable current account position allowed the SBP to buy dollars from the market, helping boost its foreign exchange reserves and meet external debt repayments. Between June 2024 and January 2025, the SBP purchased $5.677 billion from the interbank market.

The current account surplus, along with the potential disbursement of $1 billion from the IMF under a $7 billion Extended Fund Facility and approval of a $1.3 billion new Resilience and Sustainability Facility in the second week of May, is expected to lead to further buildup of forex reserves and induce much-needed stability in the forex market. A strong current account, together with IMF and commercial inflows, would take foreign exchange reserves to over $14 billion by June.