Rupee likely to remain firm

Rupee remained stable against the US dollar at 115.61 in the interbank market during the week, while it’s expected to continue a range-bound trading pattern in the coming week, dealers said.

“The range of 115.61/115.63 looks likely to hold for the next week,” a dealer said. “However, the currency could witness some moves during the interim government.”

Currency dealers said a 50 basis points increase in policy rate by the central bank in its May monetary policy also indicates another episode of currency depreciation in the near-term.

The State Bank of Pakistan on Friday raised its key policy rate by 50 basis points to 6.50 percent for the next two month to curb demand. The open market was a little volatile during the outgoing week due to increase in foreign exchange demand mainly from the people going to Umrah.

The rupee depreciated one percent in the kerb market during the week. It closed at 117.90/dollar on Monday. However, it ended the week unchanged at 119.

The hike was higher than market expectations. SBP cautioned that since the last monetary policy announcement, the external balance of payments picture deteriorated despite some rise in exports due to sharp increase in international oil prices and limited financial flows to date, Topline Research said.

“In absence of sufficient flows, the country’s own resources were used to finance the external deficit (current account deficit of $14 billion in July-April 2018) that led the country’s foreign exchange reserves to decline by $5.8 billion to $10.3 billion as of May 18, 2018,” the report said in a flash note.

“We are maintaining our expectations that SBP will increase interest rates by a further of 75 basis points during 2018 in order to curb spiraling aggregate demand and imports of the country,” it added.