Rupee may strengthen further

KARACHI: The rupee is expected to strengthen marginally against the greenback in the next week due to increased inflows from remittances under the Roshan Digital Account (RDA) and investments coming into the bonds, and thin dollar demand from importers.

The rupee breached the 159 level, closing higher at 158.82 against the dollar on Friday. It ended at 159.56 on Monday. The rupee appreciated 0.46 percent during the outgoing week.

“We are seeing an increased stream of the remittances under RDA, which has caused the market to appreciate. We expect the trend to continue, demand is a bit subdued at the moment due to a break in import payments amid the week-long holiday period in China,” a foreign exchange trader said.

“We anticipate the rupee to move in the range of 158.30 and 158.70 to the dollar in the coming sessions.”

Pakistan has received more than $480 million from overseas Pakistanis through Roshan Digital Account in five months. The initiative was launched on September 10, 2020.

“In my view, inflows are more than outflows, as [the] dollars are coming in the form of remittances, investment coming in bonds due to higher rates and RDA flows,” said Samiullah Tariq, head of research at Pak-Kuwait Investment Company.

“I think it [rupee] wouldn’t go below 158,” Tariq added.

Analysts said a recent appreciation in the currency got traders searching for future direction.

They are monitoring the currency moves to know whether the rupee will continue to march higher in the coming days.

“It may appear that the rupee is destined for quick appreciation,” a Tresmark said in a note on Saturday.

However, it cited some analysts who pointed out other balancing factors. The central bank’s foreign exchange reserves declined by $82 million to $12.949 billion on weekly basis.

The current account showed a deficit of $622 million in December 2020, Special Convertible Rupee Accounts have shown a mild outflow of $18 million this month, oil has gained by around 18 percent year-to-date, and Real Effective Exchange Rate is expected to converge to 100 for December data (not yet released).

Disbursements under the Temporary Economic Refinance Facility (TERF) may well top Rs600 billion - this would then convert to imports of around $3.75 billion.

“Considering the above, it would seem that the central bank would be better off mopping up the temporary excess liquidity in the system and build its reserves,” Tresmark said.

“This is not without precedent as we saw sharp resistance on November 16, 2020, when the market made a low of 158.07 and

reversed direction. Essentially, traders will be expecting the rupee not to breach the 158 level.”