Rupee may face pressure

KARACHI: The rupee is expected to face downside pressure over the next week due to the increasing dollar demand from importers and corporates ahead of the Eid-ul-Fitr holidays, traders said on Saturday.

“The demand from general importers and the firms wishing to fulfill orders and make payments before the Eid holidays force them to rush to the market, weighing on the local unit, a foreign exchange trader said.

However, the inflows from remittances are likely to help the local currency stabilise in the sessions ahead, he added.

Overseas Pakistanis send home large amounts of their savings in the holy month of Ramazan to support their families for Eid spending and Zakat donations.

The rupee fluctuated several times between the week’s high and low of 153.20-154.55 against the dollar in the interbank market.

The rupee fell 0.20 percent to close at 153.45 to the dollar this week.

“In the coming week, we anticipate some pressure on the rupee given it will be the last week before an extended Eid break of almost 10 days, said an analyst at Tresmark, an application that tracks financial markets, in a report published on Saturday.

“While remittances, which have been slow at the beginning of the Ramazan, may pick up the pace.”

Some of the rupee weakness could be attributed to the increasing apprehensions of lockdown, but several analysts attributed it more to the active presence of the State Bank of Pakistan (SBP) to mop up excess dollar liquidity.

“This is the kind of proactivity our team has been prescribing to keep currency volatility low and, at the same time, building up foreign exchange reserves,” it said.

The foreign exchange reserves, coincidentally, also went up by $307 million weak-on-weak despite the fact that the Special Convertible Rupee Account showed a $71 million net outflow during the month of April (mostly equity and T-bills).

Currency traders are still in the favour of going long on the rupee, mostly due to expectations of higher remittances and Ramazan-related inflows, the report said.

This is why when real effective exchange rate figures clocked in at 100.50 in March, the traders covered their positions and the dollar gained temporarily, but then again weakened to close at 153.50.

Pakistan’s foreign exchange reserves rose to $23.520 billion in the week ended April 23 from $23.212 billion a week ago.

The forex reserves held by the State Bank of Pakistan increased by $384 million to $16.427 billion.

Forex traders expect the rupee to remain stable for now, trading at 153 levels in the coming sessions, though some downward pressure may be seen in the short-term, as payments are likely to pick up.

The rupee is likely to weaken to 160/dollar by the end of this fiscal year, analysts said.

It has been supported in recent days by rising dollar inflows due to investments coming into the RDA, pick up in exports, and higher foreign exchange reserves.