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January 26, 2020

Rupee may stay firm

Business

January 26, 2020

The rupee is likely to remain stable against the dollar next week due to improved inflows in debt securities and sluggish demand for the foreign currency for import payments.

According to the State Bank of Pakistan (SBP), $2.571 billion was invested by the foreign participants in Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs) during July 1, 2019 to January 23, 2020.

The inflows in debt securities are likely to increase due to attractive rate of returns. The SBP is scheduled to announce policy rate on January 28, 2020 for the next two months. The present policy rate is 13.25 percent, and considering the inflationary pressure, the central bank is unlikely to review any downward revision.

The demand for the greenback may also remain sluggish due to outbreak of coronavirus in China. Pakistan is one of the major buyers of Chinese products. Due to this outbreak followed by health advisory, the importers may remain cautious to purchase dollars for Chinese imports.

Besides, the import bill of Pakistan had already started declining owing to slowdown in the economy and measures taken by the government in the latest budget.

The import bill of the country fell 16.9 percent to $23.23 billion during July–December (2019/20), compared with $27.95 billion in the corresponding period of the last fiscal year.

This helped the country narrow the trade deficit by 30 percent. The trade deficit shrank to $11.69 billion in the first half of the current fiscal year, compared with the deficit of $16.77 billion in the corresponding half of the last fiscal year.

The rising foreign exchange reserves of the country may also help the local unit to stay stable in the coming days. The foreign exchange reserves held by the State Bank of Pakistan rose to $11.586 billion as of January 10 from $11.503 a week ago.

The local currency may also move during the next week on the positive reports regarding Pakistan’s status in the Financial Action Task Force (FATF). Some reports suggested Pakistan would come out of the ‘grey list’ of the FTAF at the meeting of the working group held in Beijing, China.

During the week (January 20 to 24) the rupee gained three paisas after starting

the week at Rs154.59 to end at Rs154.56 against the dollar in interbank foreign exchange market.