Rupee may strengthen further

KARACHI: The rupee is likely to strengthen further against the dollar in the coming week, owing to inflows from remittances, Roshan Digital Account, and greenback selling from exporters, outweighing demand from importers.

The local unit staged a strong rally touching 156.85 in the intraday trade on Friday, the highest in a year. It closed at 157.12/dollar in the interbank market. Last year, it had closed at 154.30, but then started to lose value, as the pandemic-related lockdowns started, which weakened the rupee to 169 against the dollar.

“We expect a sustained bullish rupee in the face of comparatively weaker demand for the dollar, amid sufficient supplies,” a foreign exchange dealer said on Saturday.

“If the supply of dollars to the market is sustained, the rupee will extend gains in the near-term. The local unit seems to trade at 156 level against the dollar next week.”

Earlier in the week, there was strong support at the 158.10 level, but after it was captured the rupee/dollar parity fell quickly, only taking a breather on the day Pakistan Tehreek-e-Insaf lost the Senate elections.

The rupee has gained by around 2.50 percent since the beginning of 2021 on RDA inflows, the comfort of IMF’s programme, and robust forward sale of dollars by exporters. Last week, the country’s foreign exchange reserves also rose to $20.133 billion.

Tresmark, an application that tracks financial markets, in a client note, said that besides positives, the current account remained in a deficit in February, though at a smaller pace, the fiscal deficit is at historic highs and inflation continues to be insurmountable. Pakistan also has a schedule of debt payments by June, amounting to almost $3 billion. There is still a substantial backlog of import payments, which are, for unknown reasons, not approved to be processed. The Real Effective Exchange Rate (REER) too is estimated to have crossed the magical 100-mark last month (no official numbers available), an analyst at Tresmark said.

Regional and peer currencies, including India, Sri Lanka, Indonesia, Turkey, Brazil, Thailand, and Malaysia have all lost value in the last few days against the dollar, ever since T-bill yields have gone up and the dollar gained against almost all the currencies.

The only exception has been the rupee, which gained. The decline in the dollar value is likely to help reduce the debt burden and fall in imported inflation.

However, this ongoing rally in the rupee could make exports relatively noncompetitive on pricing. It would have negative implications for the exports.

Analysts said that the rupee may gain further in the next 30 days before consolidating and reversing some of its gains.

Like the world, bond yields have gone up. The six-month and 10-year bonds that were trading at 7.18 percent and 10 percent a few weeks ago are now trading at 7.50 percent and 10.25 percent, with Karachi Interbank Offered Rate also going up in line with these benchmarks.