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October 18, 2020

Rupee may retain gains


October 18, 2020

KARACHI: The rupee is expected to register more gains against the dollar in the coming week due to inflows from remittances and multilateral sources, while slowdown in oil import payments and positive sentiment are also lending support to the currency, traders said.

The rupee continued to saw a rally in the interbank market during the outgoing week. It rose from 164 to 162.50 against the dollar. The local unit appreciated 3.75 percent from an all-time low of 168.44 in August.

“We anticipate the rupee to appreciate further because the demand for the greenback seems to remain low and the inflows stay robust,” a trader at a leading commercial bank said.

Most traders are quizzing if the domestic currency will recuperate to pre-covid levels. The export industry is going strong, remittances are on all-time high, oil-related payments have slowed down, multilateral flows are pouring in and debt repayments have been pushed forward.

Further, any material inflows of hot money will flush the market.

“For now, we see the rupee continue its gains on the current inertia and a move below 160/$ is quite possible. But the mid- to long-term will be dependent on IMF negotiations, and also on how multilateral inflows and Pakistan’s ability to raise funds abroad shape up,” Tresmark said in a note to clients.

However, foreign exchange reserves for the last three consecutive weeks have dropped significantly.

Moreover, the International Monetary Fund Programme has been on pause and FATF [Financial Action Task Force] is still a live threat.

The report, citing analysts said that the most important stakeholder in the forex market is the central bank, and if it decides to leave excess dollars in the market, the rupee will keep gaining.

It should mop up the excess dollars to build up its reserves, because a move below 160 will start hurting the business community.

However, at the same time, analysts expect the State Bank of Pakistan (SBP) to keep the currency in line with the regional trend.

Most currencies in the region have gained in the last few weeks.

Indian rupee, bhat, ringgit, rupiah and Sri Lankan rupee have all gained 4.7 percent, 5.5 percent, 7 percent, 12.9 percent and 4.9 percent, respectively.

Almost all currencies plunged earlier this year, as COVID took control and lockdowns began, resulting in foreign investors pulling out money and trade volumes dwindling.

Now, as economies are gradually recovering, these currencies are likely to gain

back lost ground. Some of these gains have partly been due to dollar weakness, as well. But not all currencies have rebounded equally.

In places still largely impacted by Covid-related economic slumps (like Brazil, Turkey and Russia) currencies have continued to slide.