Rupee seen stable on soft demand

KARACHI: Rupee is expected to trade stable against the dollar in the week ahead helped by strong remittance inflows ahead of the holy month of Ramazan and importers’ waning appetite for hard currency, traders said.

“Next week, I think because most importers are reluctant to get forward booking owing to the rising coronavirus cases in the country, there won’t be much demand in the market and we may see the rupee to hold steady or strengthen just a little bit,” said a currency trader at a commercial bank.

Increasing dollar inflows in the form of remittances from Pakistani workers employed abroad with the approach of fasting month of Ramazan (to be commenced from next week) will contribute, matching the demand of US currency in the market, if it surges,” the trader said.

“We expect the rupee to trade 152. 60 to 153.20 per dollar in the coming days,” said another trader.

The rupee gained 72 paisas or 0.46 percent against the dollar in the interbank market this week. The local unit closed at 153.66 to the dollar on Monday. However, persistent lower import payments and better inflows helped the rupee conclude the week at 152.94 per dollar.

The rupee was also supported by the boost in the foreign exchange reserves following the proceeds of Eurobonds issuance.

State Bank of Pakistan has received the proceeds of the government's $2.5 billion Eurobond issuance in its account. As a result, SBP’s foreign exchange reserves closed above $16 billion, their highest level since July 2017. The country’s reserves fell to $20.679 billion as of April 02, from $20.836 billion in the previous week.

The reserves held by the central bank decreased $146 million to $13.527 billion, due to external debt repayments.

The International Monetary Fund in its country report published this week said the SBP remains committed to a market-determined exchange rate and further accumulating reserves. This remains crucial to absorb external shocks, maintain competitiveness and current account sustainability, and build adequate reserve buffers.

“Going forward, the authorities will continue to (i) use purchases in the FX interbank market to rebuild reserve buffers amid favorable market conditions, but not to influence exchange rate trends; and (ii) limit sales to only offset disorderly market conditions,” it said.

Despite some easing of existing exchange restrictions and multiple currency practice (MCP), further extension of those remaining is needed.

Introduced at a time of heightened volatility to support the balance of payments (BOP), the authorities still maintain an exchange restriction and MCP arising from the imposition of a 100 percent cash margin requirement on imports of certain goods (imposed in 2017); and an exchange restriction resulting from the limitation on advance payments for imports against letters of credit (LCs) and advance payments up to the certain amount per invoice (without LCs) for the import of eligible items (imposed in 2018), it added.

“The authorities have made progress in easing them but request more time to remove them fully when BOP [Balance of Payments] conditions permit and within the program period,” said the report.