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July 12, 2020

Rupee seen appreciating


July 12, 2020

KARACHI: The rupee is expected to strengthen further in the coming week due to weak dollar demand from importers with markets players eyeing an increase in inflows from remittances ahead of Eid-ul-Azha festival later this month, traders said.

“The outlook is that we expect the rupee to gain slightly against the dollar in the next week, amid lower payment obligations. An expected increase in dollar inflows in the shape of workers’ remittances could also support the domestic currency,” a trader from a commercial bank said.

The rupee is expected to trade in the band of 165.50 and 166 in the interbank market in the coming sessions, the trader added.

The local currency gained 60 paisas, or 0.35 percent, against the dollar during the outgoing week. It closed at 166.35 versus the greenback on Friday.

Traders said inflows are particularly high because most Pakistanis working abroad sent more money to families to buy sacrificial animals ahead of Eid-ul-Azha.

However, some dealers fear remittances are likely to see some decline, as most overseas Pakistanis will face difficulties in sending money home at Eid to support families due to the impact of the coronavirus pandemic.

Coronavirus around the world has compelled companies to cut jobs and wages. Many Pakistani labourers in the Gulf countries have lost jobs and some have returned to the country.

Money sent home by expatriate Pakistanis slightly rose 2.7 percent to $20.654 billion in 11 months (July-May) of the current fiscal year.

Sentiment is also positive, as market participants believe the State Bank of Pakistan has sufficient foreign currency reserves to pay import bill and meet debt servicing obligations.

During the week ended July 3, the SBP’s forex reserves stood at $12.042 billion, or 2.8 months of import cover, thanks to $1 billion loan disbursements received from China on June 30.

Analysts expect the rupee to depreciate five percent against the dollar in the current fiscal year of 2020/21 due to the manageable current account deficit and subdued inflation outlook.

The rupee is now slightly below its equilibrium value as shown by the fresh reading of 95.7 as measured by real effective exchange rate.

The SBP let the rupee depreciate massively in the inter-bank market after finalisation of an agreement with the International Monetary Fund (IMF) for a loan programme in 2019.

The IMF asked Pakistan to end state control of the rupee and let the currency move freely to find its equilibrium against the US dollar and other major world currencies.

The current account deficit is forecast to clock in at $4 billion, or 1.5 percent, of the gross domestic product for the last fiscal year, as a sharp decline in exports is likely to be more than offset by decrease in imports.