Rupee to stay under pressure

KARACHI: Rupee is reeling under a dwarfing impact of US dollars’ exit from the market and the transition is expected to take some time despite the central bank’s foreign exchange injection to heal the battered local currency, analysts said on Saturday.

The rupee weakened sharply in the outgoing week due to a large cut in interest rates by the State Bank of Pakistan (SBP) and analysts said the currency is expected to remain under pressure in coming days on worry about the depleting foreign exchange reserves amid capital outflows.

“Amidst continuous foreign selling in domestic equity and fixed income markets, pressure is likely to persist in the near-term,” an analyst at BMA Capital said.

The analyst said the withdrawal of foreign investments from the short-term government securities is putting pressure on the SBP’s foreign exchange reserves, building up pressure on the rupee.

The reserves held by the SBP fell to $11.989 billion as of March 20 from $12.679 billion in the previous week.

In March so far, foreign investors divested $1.6 billion from treasury bills, having maturity of up to one year. The inflows in treasury bills during the period amounted to $18.5 million. They dumped $1.9 billion worth of short-term securities since July last year, compared to $3.4 billion of inflows, according to the SBP’s latest data.

This was despite the market consensus that foreign investors would roll back their investments in the Pakistan’s debt market. One reason of their exit stemmed from coronavirus impact on global economies with investors betting now on safe assets. Besides, the central bank’s soft monetary stance catalysed the retreat.

Analysts said the central bank’s moves to slash policy rates by a cumulative 225 basis points to 11 percent in just one week caused higher volatility in the foreign exchange market. The drop in yields on government papers due to interest rate cut and growing fears about the coronavirus outbreak prompted foreign investors to move towards safe heavens or dollar-denominated assets.

The rupee fell 4.1 percent or Rs6.54 as against the dollar in the past four sessions. The local unit started the week on a negative note, losing 33 paisas to close at 159/dollar on Tuesday. The rupee extended losses on Wednesday and closed at 161.60. On Thursday, the rupee hit an all-time low of 166.13. With the SBP’s intervention in the interbank market, the rupee ended at 165.54 in the last session.

The central bank is expected to continue supporting the rupee in the coming days. The SBP intervened in the market to stem panic.

The SBP’s spokesman earlier said the central bank was committed to a market-based exchange rate. It intervened to address disorderly market conditions, the Bloomberg quoted him as saying.

Analysts, however, see the rupee to trade around current levels because of fall in global commodity prices and further contraction in trade deficit amid suspension of oil imports.