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June 21, 2020

Rupee likely to gain next week


June 21, 2020

KARACHI: The rupee is likely to strengthen against the dollar next week, supported by expected inflows from international financial institutions, traders said on Saturday.

There are reports that multilateral money may be coming in the country next week.

The World Bank, Asian Development Bank and Asian Infrastructure Investment Bank have signed agreements facilitating receipt of about $1.5 billion coming next week.

The said inflows would help mitigate the socioeconomic impact of the new coronavirus pandemic in the country.

“The rupee could gain versus the greenback as lined-up multilateral money would help boost dollar flows in the currency market,” a dealer said.

“The rupee seems to be trading between 164 and 165 per dollar in the coming week.”

Domestic currency had been falling on the back of declining foreign exchange reserves and increasing outflows in low volume conditions.

The local unit touched a multi-week low of 167 on Friday with traders anticipating more losses, unless substantial inflows materialised.

“This news of multilateral loan will calm the currency markets with traders forecasting the rupee to gain in the coming week irrespective of any monetary policy action,” said a report published by Tresmark on Saturday.

The report believed there were still crucial obstacles to overcome.

Traders were spooked two weeks back when Pakistan had to pay Chinese commercial banks (not officially stated) about a billion which was supposed to have been rolled over, the report said.

Secondly, in spite of intense negotiations with the International Monetary Fund (IMF), there has not been an official statement of resuming the IMF Extended Fund Facility programme.

“If Pakistan is unable to roll over Chinese debt, there may be further repayments to the tune of $2 billion in current calendar year, plus if IMF delays reinstating the programme, Pakistan will find it next to impossible to draw down on foreign aid and debt (including Euro bonds),” it noted.

While these were major obstacles, the latter might transpire within the next two weeks and might even be contingent to partial adjustment of Chinese debt, it mentioned.

Traders were of the view that a 100 basis points policy rate cut has been factored in, and the question was whether it happens in one go (which would create room for further rate cut in the future) or in two different monetary policy announcements (signally tail end of rate cuts).

Markets do not expect any emergency monetary policy meeting and the next rate cut would probably be seen in the scheduled monetary policy statement, according to the report.