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January 17, 2021

Rupee may remain stable

Business

January 17, 2021

KARACHI: The rupee is likely to remain stable against the dollar or marginally weakened next week on the back of increased demand for the hard currency from importers, traders said on Saturday.

“The local unit is expected to follow a range-bound trading pattern for the next week. However, any uptick in the dollar demand for import payments, especially oil could hamper the rupee’s stability,” a foreign exchange trader said.

“Taking the cue from this week, we anticipate the local unit to trade on the backfoot to the dollar in the coming sessions if an expected demand for the dollars emerges in the market and supplies diminished,” another trader said.

“The next range should be 160.25 and 160.75,” he added.

The rupee was largely stable with marginal gains in the last fourth sessions of the outgoing week.

The domestic currency was supported by muted demand, strong inflows from exports and remittances, and positive sentiment about the country’s economic outlook.

The local currency was successful in trading within the range of 160 and 160.50. It gained 24 paisas versus the greenback in the interbank market from Tuesday to Thursday.

However, a sudden demand for import payments during the last session limited the gains. The rupee closed at 160.33 on Friday.

The decline in the central bank’s foreign exchange reserves affected the traders’ sentiment.

The foreign exchange reserves held by the State Bank of Pakistan decreased $12 million to $13.40 billion as of January 8.

By and large, the outlook for the local unit remains stable in the near-term, given the positive developments on the economic front, traders said.

The likelihood of the resumption of the suspended International Monetary Fund (IMF) programme, positive macroeconomic indicators and sizeable improvement on the external account front lend support to the rupee in the days to come.

The market-determined exchange rate regime, increase in remittances, lower energy import bill, and subdued local demand helped the current account balance posted a surplus in the five months of the current fiscal year.

The country posted a surplus of $1.640 billion in July-November FY21, compared with the deficit of $1.745 billion in the corresponding period of the last fiscal year.

The encouraging industrial output numbers and stable outlook for Pakistan’s economy, as well as the banking sector by the latest Moody’s report positively impacted the rupee.

The large-scale manufacturing index grew 14.45 percent in November, while cumulatively, the index picked up 7.4 percent year-on-year in the five months of the current fiscal year.

The market expects the LSM index to remain upbeat owing to accelerating manufacturing operations, improvement in aggregate demand and new investments.

Markets expect continued monetary easing by the State Bank of Pakistan (SBP), as they have correctly identified the second coronavirus pandemic wave as a key downside risk to growth and forecasting a 1.5 percent to 2.5 percent GDP growth in FY21.