Rupee may stay firm

KARACHI: The rupee is expected to remain range-bound against the dollar in the coming week, as the market awaits clues on the monetary policy announcement due on Monday.

Importers’ demand for the greenback also remained subdued, while inflows were healthy.

“I think more market players will wait to see what the central bank’s September monetary policy will have implications for the rupee before taking fresh positions,” a currency dealer said.

“By and large, the currency seems to remain steady next week unless a high demand from importers and corporates creates in the market and supply of the dollar slows,” the dealer added.

In the interbank market, the rupee was quoted at 165.83 against the dollar on Friday, slightly stronger than last Friday’s closing of 165.97. It is expected to trade in the range of 165.75 and 166.25 in the coming sessions.

During the outgoing week, the foreign exchange market was calm in the presence of positive developments and data on the economic front.

Traders were fixated at the unfolding of the Financial Action Task Force-related developments. For the time being, it seems Pakistan will manage to maintain the status quo in that regard.

The country also saw a surge in the foreign direct investment, whereas workers’ remittances also stayed robust. Forex reserves are on the cusp of hitting the $20 billion mark.

It appears that exports may take a dip, but generally, Pakistan’s growth is robust and may fare better than its peers.

Remittances to Pakistan rose to $4.863 billion in July-August fiscal year 2020/21 from $3.712 billion a year ago.

FDI in Pakistan rose 40 percent to $226.7 million in the first two months of the current fiscal year.

Total liquid foreign exchange reserves held by the country stood at $19.959 billion, compared with $19.961 billion in the previous week.

Since the State Bank of Pakistan (SBP) has announced the date of the monetary policy meeting, there is considerable debate on the potential outcome.

While the majority of markets expect the central bank to keep the rates unchanged, there is a very vocal minority on both the sides of the spectrum.

“One side, which is of the opinion that a 50bps hike is on the card may retreat from their stance based on resurgence of the pandemic worldwide. Also, Fed's decision to keep rates near zero for the next three years will surely have some impact on the central banks worldwide,” a Tresmark, an application that tracks financial markets, said in a client note.

Calls for a potential 50bps rate cut, which were inaudible just a few days ago, have gained momentum, it said.

“Their view has been fortified based on a stable external account, a stronger rupee (last week’s range 165.70 to 166.40) and a global trend of easy monetary policy. At this point, doing nothing will be the path of least resistance, but there is much to gain from a little stimulus, especially as the industry has introduced several higher return deposit options for depositors.”