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Thursday March 28, 2024

Rupee may remain firm

By Our Correspondent
February 21, 2021

KARACHI: The rupee is expected to remain firm next week because of increased inflows from the Pakistani diaspora in the Roshan Digital Account (RDA) and export proceeds. However, a declining trend in the foreign exchange reserves could be negative for the market sentiment.

The rupee, which mostly held 159 levels against the dollar in the outgoing week, had breached this barrier and closed higher at 158.93 on Thursday. The gain in the currency was sentiment-driven as the International Monetary Fund (IMF) and Pakistan reached a staff-level agreement on reforms that will allow the release of around $500 million in funds.

RDA inflows crossed the $500 million mark in five months. After absorbing these two positive developments, the rupee reversed gains and ended at 159.10 against the dollar on Friday.

“We expect to see a stable trend in the rupee to hold, as remittances are increasing and exports have picked up, but the appreciation in the local unit seems to be capped around the 159/dollar mark in the near-term with the country’s forex reserves falling and coming close to going below the $20 billion levels,” a currency dealer said.

“The rupee should most likely trade in a 159.20 to 159.50 band in the coming days,” he added.

Another dealer said the month-end demand from importers is likely to push the rupee slightly down, but accelerated inflows from remittances and RDA might continue to offer support to the local currency.

Data issued by the State Bank of Pakistan showed that workers’ remittances rose 19 percent year-on-year to $2.3 billion in January. However, the remittances remained lower from the December 2020 level of $2.4 billion.

The country’s forex reserves stood at $20.058 billion in the week ended February 12, compared with $20.073 billion a week ago.

The foreign exchange reserves held by the State Bank of Pakistan fell $59 million to $12.889 billion on the back of foreign debt repayments.

Traders are on the lookout for any hints of the economic policy matter; following the revival of the IMF programme. Analysts anticipate the Fund wants Pakistan’s government to pursue long-term reforms, increase tax/revenue collection, encourage privatisation, and resolve the circular debt issue to strengthen the financial system.

The IMF in a recent statement said the Covid-19 shock has required a careful recalibration of the macroeconomic policy mix, the reforms calendar, and the EFF review schedule.

“Against this background, the authorities have formulated a package of measures that strikes an appropriate balance between supporting the economy, ensuring debt sustainability, and advancing structural reforms,” it said.

The fiscal strategy remains anchored by the sustainable primary deficit of the FY21 budget and allows for higher-than-expected COVID-related and social spending to minimise the short-term impact on growth and the most vulnerable.

The targets are supported by careful spending management and revenue measures, including reforms of corporate taxation to make it fairer and more transparent, it noted.

The power sector’s strategy aims at financial viability through management improvements, cost reductions, and adjustments in tariffs and subsidies calibrated to attenuate social and sectoral impacts, it said.