KARACHI: The rupee is likely to remain stable against the dollar or strengthen marginally next week supported by the sluggish demand for the greenback from importers and positive sentiments due to strong growth in exports, traders said.
“The local unit could hover around the same level during the first week of 2021, or appreciate slightly, owing to the lower import payments. The exports and remittances are good, so the sentiment is for a strong rupee,” a foreign exchange trader said.
In the interbank market, the rupee closed the year at 159.83, depreciating 3 percent, compared with the start of the year, but significantly stronger than the record low trading of 169.50 on March 27. The rupee ended an all-time low of 168.43 against the dollar on August 26, 2020.
Significant growth in remittances, higher exports, strong foreign exchange reserves, and increased inflows from multilateral sources contributed to the rise in the rupee’s value at the close of the year.
Exports increased 18.3 percent to $2.357 billion in December from $1.993 billion a year ago, the provisional figures shared by Adviser to the Prime Minister on Commerce and Investment Abdul Razak Dawood in a tweet, showed.
The rupee’s strength has also been supported by a lower import bill, the slowdown in international oil prices and rescheduling of debt.
Moreover, a struggling dollar in the global markets led to the appreciation of the domestic currency’s value in the last quarter of 2020.
Analysts expect the rupee to stay stable with slight depreciation against the dollar in 2021.
“I expect the rupee to remain stable and show only marginal devaluation if any,” said Saad Hashemy, an executive director at BMA Capital.
“This is because of strong remittances, a promising start of the Roshan Digital initiative, healthy growth in exports in recent months and REER [Real Effective Exchange Rate], which is below 100 and showing that PKR is currently undervalued,” Hashemy added.
The Roshan Digital Account initiative anticipates bringing in another $1.2 billion in 2021 (having clocked in about $200 million last year).
Bank treasurers said there are many factors, which go in the favour of the rupee, but we cannot overlook the role of inflation rate differential with the country’s trading partners and the higher fiscal deficit.
The rupee could trade at 158 levels in the first quarter of 2021 after which a gradual weakening could be anticipated.
Consumer Price Index inflation has eased to 8 percent in December from 8.3 percent in the previous month. However, analysts expect inflation to remain under pressure and may see a peak in May before easing again.
Foreign investment in bonds rose nearly $77 million in the last two months of 2020, showing confidence in the country’s economy. Foreign investors expect interest rates and currency rates to remain stable this year.
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