Rupee may remain under pressure

KARACHI: The rupee is expected to remain under pressure next week due to a higher appetite for the hard currency from importers, traders said on Saturday.

“The rupee has been weakening throughout the last five sessions due to strong dollar demand and the next week we are expecting the rupee to lose some more ground against the greenback,”' a trader at one commercial bank said.

“The demand is likely to come from importers and the corporate sector.”

The local currency depreciated 0.49 percent to close at 153.36 against the dollar in the interbank market during the outgoing week, but it was enough for the traders to speculate on the future direction of the local currency.

Last week, imports were higher, whereas exports and remittances were mostly materialised before the extended Eid holidays.

“While this is quite typical, the traders were more focused on Real Effective Exchange Rate (ERR) due to uptick in inflation,” Tresmark, an application that tracks financial markets, in a client note said.

February and March REER posted on the State Bank of Pakistan’s (SBP) website recorded 97.2 and 100.5, respectively.

“However, our estimates for April are around 104. If the published rates for April are close to these estimates, the local currency will come under some pressure.

Also, with increasing volatility in the international markets, the odds are more in favour of a weaker rupee (as capital flows out of emerging markets with more volatility),” it said.

Having said this, traders are expecting the rupee to stabilise around 155 by the end of June 2021, it added.

The first week after the extended holidays was uneventful and range-bound. Interest rates were stuck in a narrow corridor with analysts unanimous of no rate change in the upcoming monetary policy statement, primarily to compensate for the loss of the economic opportunities stemming from lockdowns and other measures.

The National Accounts Committee (NAC) has estimated this fiscal year’s gross domestic growth close to 4 percent, surprising everybody and bringing optimism within the business circles.

Other positives were stable external conditions and a stronger pipeline of foreign currency capital inflows.

Inflation has been higher recently, but that hasn’t translated into more activity in the bond markets.

Topline Securities conducted a poll of key financial market participants over their views on the upcoming monetary policy statement.

A total of 78 participants took part in the latest poll. About 73 percent of the participants are expecting no change in the policy rate in the upcoming monetary policy, compared with 82 percent in the previous poll.

Around 13 percent of the participants expect an increase of 25 basis points (bps) in the policy rate, while 12 percent of the participants anticipate a cut of 25-50 bps.