Rupee may face pressure

KARACHI: The rupee is expected to face mild pressure against the dollar in the week ahead due to lower foreign currency inflows from exports and remittances caused by coronavirus disruptions.

On Friday, the State Bank of Pakistan (SBP) quoted the rupee at 166.76/ dollar, down from a close of 165.54 a week ago.

“In coming week, the rupee could see volatile trading as banks and importers would buy dollars to meet the demand,” said a currency dealer.

“The supplies in the market are also likely to remain low. In the interbank market, the rupee might cross the 166 level to the dollar in coming sessions,” he added.

A decline in the foreign exchange reserves has reinforced concerns about the currency and the balance of payments.

The central bank’s own foreign reserves fell to $11.185 billion in the week that ended on March 27 from $11.989 billion a week earlier, providing three months’ import cover.

“We are still in the midst of the crises without it having peaked, so it’s early to say how rupee may settle in the short to medium-term, but we’ve seen central bank’s tolerance level of just shy of 170/$,” said an analyst at Tresmark, that tracks financial markets, in a report.

The currency might see more flight of hot money to the tune of $500-700 million this month given that global markets remain rattled, but this might not exert extra pressure on the rupee, the report added.

“Expediting multilateral loans and grants should be the top priority as that will not only comfort the markets but create a much needed cushion in terms of foreign exchange reserves.”

Outflow of foreign investment during the current fiscal year crossed $2 billion as foreign investors pulled out nearly 60 percent of their funds from the treasury bills.

Over $1.9 billion of foreign investment in the domestic bonds and equity flew out within a month.

Analysts said Pakistan needs $3-4 billion foreign financing to meet its balance of payments needs.

The government’s plans to secure foreign inflows via issuance of sovereign bonds in international capital markets, privatisation of power plants and increase in hot money

inflows were unlikely to materialise due to deterioration in global outlook amid covid-19.

The rupee was range-bound and volumes were significantly low, the report said.

But traders were on edge. “With the volatility we have seen recently, dealers would jump on every phone ring.

While, exports, remittances and imports were thin, about $250 million left this week, whereas reserves declined by approximately $800 million,” the analyst added.

A high ratio of exports being realised were adjusted against forward sales exporters had made earlier.