Rupee may remain range-bound

KARACHI: The rupee is expected to be range-bound next coming week, depending on the level of demand for the dollars from importers, amid a strong pickup in the economic activity, traders said.

“Apart from the importers’ demand, the Real Effective Exchange Rate [REER] and position of daily inflows will be instrumental to gauge the rupee’s future direction,” a foreign exchange trader said.

“We anticipate the rupee to trade within the range of 154.50 to 155 in the week ahead.”

The rupee dropped to 155.25 before easing back again to close at 154.43 against the dollar on Friday in the interbank market.

The local unit depreciated 0.52 percent during the outgoing week. The rupee opened the week at 153.70 versus the greenback.

The State Bank of Pakistan kept the policy rate unchanged at 7 percent on Friday in line with the market’s expectations.

Most traders delved into the monetary policy statement for future guidance.

The consensus view is that the accommodative stance may continue throughout 2021.

The Monetary Policy Committee (MPC) expects the monetary policy to remain accommodative in the near term, and any adjustments in the policy rate to be measured and gradual to achieve mildly positive real interest rates over time.

If demand-side pressures emerge, as the recovery becomes more durable and the economy returns to full capacity, the MPC said that it would be prudent for the monetary policy to begin to normalise through a gradual reduction in the degree of accommodation.

The State Bank revised gross domestic growth forecast for FY2021 at 3.94 percent as opposed to 3 percent earlier. This recovery is supported by aggressive monetary stimulus and targetted fiscal measures.

Demand is gradually recovering but the output gap for FY2021 is still in the negative zone (-0.08 percent of GDP), and the State Bank expects it to remain at a similar level in FY2022 despite higher growth expectations in the next fiscal year, mainly due to capacity investment made through TERF facility.

The central bank maintains its inflation estimate for FY2021, where it expects the consumer price index (CPI) to close near the upper end of the announced range of 7 percent to 9 percent.

It expects inflation to gradually fall towards 5 percent to 7 percent over the medium term.

“[The] SBP expects [the] current account deficit to remain bounded, largely thanks to flexible exchange rate regime,” Topline Securities said in a report.

“The recent increase in trade deficit has been due to some one-offs which include $1.1 billion import of wheat and sugar. There has also been an increase in import of machinery, as well, which is a healthy increase in imports,” it added.

The SBP believes that the growth story of remittances still has legs, as there has been an increasing trend of registered workers’ movement from Pakistan, it said.