Rupee likely to remain range-bound

KARACHI: The rupee is expected to remain range-bound against the dollar next week supported by subdued demand for hard currency, while improvement in inflows also lends support to the local unit, dealers said.

“We expect the rupee to trade within its established range of 160 to 160.50 per dollar in the interbank market in the coming sessions,” a currency dealer said.

The amount of $10 million raised by the Asian Development Bank (ADB) in the second issue of the local currency Karakoram bonds of Pakistan from foreign investors helped positive sentiment in the foreign exchange market, dealers said.

The rupee rose 0.43 percent, or 70 paisas, against the dollar in the outgoing week. It had closed at 160.10 on Friday.

The domestic currency managed to post moderate gains because of strong remittances from overseas Pakistani workers, healthy exports, and a current account surplus.

Remittances rose 24.9 percent to $14.2 billion in the first six months of the current fiscal year, and in December $2.4 billion was received.

The ADB had already endorsed a new five-year country partnership strategy to loan an estimated $10 billion to Pakistan for five years.

The World Bank also said it supports the country’s priority development objectives under an estimated $12 billion loan programme starting from the next fiscal year.

Analysts said the rupee looks to remain stable in the near-term, but the future direction of the rupee will gravitate towards its historic depreciation of around 6 percent in the long run.

In the short- to medium-term, traders will keep a close eye on the Real Effective Exchange Rate (REER).

The last three values of REER for August, September, and October are 91.79, 94.12, and 97.11, respectively.

With this trend line, it would seem that the REER would surpass the magic figure of 100 sooner or later, which, in turn, could put pressure on the rupee.

Of course, this is over-simplifying a more complex issue but gives traders some markers to monitor the currency direction.

The government intends to issue Ijara Sukuk in the domestic and international markets to raise funds for budget financing and promoting the Islamic banking industry.

The State Bank of Pakistan, in the monetary policy announced last week, said the persistent improvement in the current account position and improving sentiment led to a mild appreciation in the rupee since the last meeting and further strengthened external buffers.

The SBP’s foreign exchange reserves rose to $13 billion, their highest level since December 2017. Based upon the data available so far, the outlook for the external sector has improved further and the current account deficit for FY21 is now projected to remain below one percent of gross domestic product, it said.