Rupee may stay firm

The rupee registered minor gains against the dollar in the currency market during the outgoing week, amid lacklustre dollar demand from importers.

Extending weekend losses, the rupee in the interbank market dropped Rs1.12 in the first trading session, as it closed at 156.96/dollar, compared with the previous week’s closing of 155.84.

The rupee posted gains on Tuesday, amid low demand that pushed the rupee down to 156.80 versus the greenback.

The rupee gave up gains on Wednesday due to slight increase in the dollar demand. It closed at 156.96 in the third trading session. The currency traded flat against the dollar on Thursday.

The rupee traded slightly stronger, closing at 156.83 against the dollar on Friday.

In the open market, the rupee traded firm at 157 to the dollar during the entire week. Some developments sent positive signals to the investors.

The central bank’s provided clarity on the exchange rate policy. Moreover, Pakistan managed to gain much-needed support from three member states of the Financial Action Task Force (FATF) to avoid being placed on its blacklist.

The State Bank also announced that it had completed all prior actions of the International Monetary Fund’s Extended Fund Facility.

The SBP said a market based system is implemented in Pakistan which protects exchange rate from manipulation and simultaneously follows demand supply mechanism.

To fix exchange rate regime, Pakistan’s external situation (Current Account Deficit or CAD) started deteriorating and reserves were falling. After recent depreciation, country has seen substantial decline in the current account deficit.

The government also revealed a free trade agreement with China will be signed in the second phase of China-Pakistan Economic Corridor.

Dealers expect the rupee to continue following a range-bound trading pattern and it should hold in a 156.80-156.95 range for next week due to lack of major payment.

Pakistan’s foreign exchange reserves continue to deplete fuelled by foreign debt servicing obligations.

The country’s forex reserves fell to $14.639 billion during the week ended June 14 from $14.826 billion in the previous week.

The forex reserves held by the State Bank of Pakistan dropped $203 million to $7.604 billion. The decline in the SBP’s reserves was attributed to foreign debt servicing and other official payments.

Foreign direct investment (FDI) into Pakistan plunged 49.2 percent in the first 11 months of the current fiscal year to $1.606 billion from a year earlier.