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Rupee may fall


May 31, 2020

KARACHI: The rupee could remain under pressure in the coming week on strong

dollar demand from importers, dealers said.

“We expect the currency to weaken further. The reason is simple the supply is weak, while demand is strong,” a trader from a commercial bank said.

“There is an increased pressure due to the high demand for the dollars, as importers, who import from China and other countries, have started trading, amid easing of coronavirus restrictions,” the trader added.

The local currency lost grounds, as importers buy dollars to meet their obligations. This along with the lower foreign currency inflows from exports and remittances caused the shortage of the greenback in the foreign exchange market.

“We foresee the rupee to trade in the range of 163.50 to 163.75 against the dollar next week,” another dealer said.

Traders said the pressure arising from servicing debt could decline the value of the rupee and lead to further reduction in the foreign exchange reserves in the subsequent weeks.

There are some debt repayments due against the International Monetary Fund on June 19.

Pakistan’s foreign exchange reserves declined to $18.597 billion as of May 21 from $18.618 billion a week ago.

The foreign exchange reserves held by the State Bank of Pakistan fell to $12.073 billion from $12.129 billion.

However, lined up inflows from the World Bank, Asian Development Bank and Asian Infrastructure Investment Bank to help mitigate the social and economic impacts of the coronavirus pandemic are likely to support the rupee.

The report of resumption of discussions between the International Monetary Fund and Pakistan to complete the second review of the extended facility programme is expected to fuel positive sentiment in the market.

In the interbank market, the rupee closed at 163.10 to the dollar on Friday. It dropped Rs2.18 against the greenback during the last two days. The market remained closed from May 22 to May 27 for Eid holidays.

During the outgoing week, some companies and importers bought dollars to meet their payments that put pressure on the local currency.

The financial markets remained closed from May 22 to May 27 on the occasion of Eid holidays.

Dealers said: “We expect the rupee to lose further grounds in the coming sessions owing to persistent dollar demand in the market.”

Meanwhile, the Asian Infrastructure Investment Bank (AIIB) has pledged to provide budgetary support worth $500 million to Pakistan to mitigate the significant negative economic and social impacts caused by the coronavirus crisis.