Rupee may remain range-bound

The rupee is expected to remain mostly range-bound next week, amid normal dollar demand from importers, dealers said.

The currency seems to trade in the band of 115.61/115.62 in the coming week on flat foreign exchange demand.

However, the announcement of the interim setup by the outgoing PML-N government will set the future direction of the foreign exchange market, dealers said.

“We don’t see any payment pressure on the rupee,” a trader said. Market participants are likely to stick on the sidelines. But, it depends on the caretaker government how will it mange the exchange rate.” The government and opposition are expected to announce the name of the caretaker prime minister on Tuesday. The term of the current government is set to expire on May 31. The interim government will take office on June 1.

The currency market remained stable this week thanks to soft dollar demand. The rupee / dollar parity hovered at 115.59/115.61. The local unit rose against the dollar in the open market. It closed at 117.60/118.10/dollar on Monday as compared to 117.30/117.60 on Friday.

The State Bank of Pakistan posted disappointing balance of payments figures. The current account deficit widened 50 percent to $14 billion in July-April 2017/18. The stock of external debt and liabilities reached $91.8 billion by the end of March 2018.

Total foreign exchange reserves on May 11 were $17.067 billion, of which $10.798 billion are the net reserves with the central bank and $6.268 billion are with commercial banks.

Analysts estimate the new government will need more dollar inflows to finance the huge current account gap. External debt servicing is likely to remain a big challenge for the upcoming economic mangers due to higher imports relative to exports.