Rupee may trade range-bound

KARACHI: The rupee is likely to exhibit a range-bound movement against the dollar in the coming week due to higher demand for the hard currency from importers.

After staying range-bound last week, the rupee started its upward trend in the interbank market, as the political crises (Senate elections) eased and dollar inflows stayed robust.

On Wednesday, the rupee closed at 155.74 against the dollar, seeing a sudden appreciation of 0.98 paisas, or 0.63 percent, its biggest single-day gain since August 27, 2020.

Inflows from remittances and Roshan Digital Account, and lower-than-expected decline in Pakistan’s Real Effective Exchange Rate (REER) contributed to the rise in the rupee’s value.

The REER decreased 1.05 percent in January to 95.3177 from 96.3266 recorded in December 2020. The decline in REER persuaded exporters to sale dollars in the market.

The rupee rose to 155.45 on Thursday. However, it didn’t maintain the upward momentum and closed weaker at 155.97 to the dollar on Friday, as traders recalibrated their positions and started buying.

Traders expect the rupee to consolidate around the current levels due to a significant uptake in importers booking forwards, which counters the exporters’ sale.

“We can see a large corporate and importer demand over the next week and the inflows might not be big enough to match that,” a foreign exchange trader said.

The balance of payments’ numbers haven’t been issued yet but the current account is likely to remain negative in February that would make the current account deficit in three consecutive months, showing Pakistan has had an outflow. This may put some pressure on the local currency.

However, technical charts show the possibility of the rupee retesting the 155 level, making a temporary high at 154.42 levels in the near-term. This level was last seen during pre-COVID-19 period.

The State Bank of Pakistan (SBP) kept the policy rate unchanged at 7 percent on Friday. The decision was in line with the market expectations.

The SBP highlighted in its statement that growth and employment have continued to recover and business sentiment has further improved, for which an accommodative stance of the monetary policy remains appropriate to support the economic recovery.

The central bank in its forward guidance mentioned that it expects monetary policy settings to remain broadly unchanged in the near-term.

As the recovery becomes more durable and the economy returns to full capacity, the MPC expects any adjustments in the policy rate to be measured and gradual to achieve mildly positive real interest rates.

The SBP maintained its current account deficit estimate for FY2021 at below one percent of gross domestic product.

Analysts said despite May and July, a hike in the interest rates may be pushed further towards year-end, amid a resurgence in coronavirus cases in Pakistan and the world.