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September 27, 2020

Rupee to remain firm

Business

September 27, 2020

KARACHI: The rupee is expected to remain stable against the US dollar during the next week as foreign inflows are sufficient to meet the greenback demand of importers and others, traders said on Saturday.

Traders expected the local currency to be in the range-bound range. The rupee could hover in the range of 165.6 to 166 per dollar in the interbank market in the coming days amid increasing supply of foreign currency.

The rupee closed at 165.79 to the dollar on Friday compared with last week’s close of 165.83.

“We expect the inflows right now available in the market to be sufficient to meet the corporate/importer demand as remittances are picking up,” said a foreign exchange dealer at a large commercial bank.

“Demand for the dollars usually starts to build up ahead of the end of the month, when companies meet their obligations but we don’t see a downside pressure on the rupee for now.”

Remittances increased 31 percent to $4.8 billion in the first two months of the current fiscal year. The remittances amounted to $3.7 billion in the corresponding period a year earlier, according to the State Bank of Pakistan.

In August, remittances from overseas workers rose 24.4 percent year-on-year to $2.9 billion. In July, remittances stood at $2.7.

However, opinion is divided on how the foreign debt repayments would affect the rupee’s outlook.

There are around $60 million debt payments due to the International Monetary Fund’s (IMF) under the extended fund facility lined up next week. These payments are likely to exert pressure on the country’s foreign exchange reserves.

The government paid $30 million debt repayment to the IMF on Friday and the currency traded stronger rather than lose ground. The market easily absorbed the outflows.

Last year, the IMF agreed to lend $6 billion to Pakistan under an extended fund facility program, which was halted earlier this year as the Fund expressed reservations over the economic reforms program.

The country’s foreign exchange reserves dropped to $19.9 billion during the week ended September 18 from $19.959 billion a week earlier. The reserves held by the State Bank of Pakistan decreased $119 million to $12.7 billion due to the external debt repayments.

Analysts said a gradual recovery in exports and remittances, and a stable outlook for the external account will keep the rupee stable in the near-term.

Pakistan recorded a current account surplus for a second consecutive month in August. The surplus stood at $297 million in August, lower than the $508 million surplus in the previous month.

The SBP kept the policy rate unchanged at 7 percent for the next two months as it wanted to manage increasing inflation and current account balance. “This may bode well for the rupee in days to follow,” said an analyst.

The SBP sees Pakistan’s current account deficit to remain around 2 percent of gross domestic product in the current fiscal year.