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Saturday November 27, 2021

Rupee likely to remain stable

June 06, 2021

KARACHI: The rupee is expected to remain stable next week, amid slowing appetite for the hard currency, as well as positive sentiment after the Asia Pacific Group (APG) improved Pakistan’s rating on 21 of the 40 recommendations of the Financial Action Task Force (FATF) against money laundering and terrorism financing.

“Next week, we think because many importers have covered their payments, there won’t be much higher dollar demand in the market and so we may see the rupee to remain stable or strengthen just a little bit,” a trader at a commercial bank said.

“Pressure to the local currency is decreasing and considering that we expect the local unit to trade in the 154.40 to 154.80 range in the week ahead,” he added.

“Sentiments are expected to be boosted by positives of the FATF progress.”

APG has decided to move Pakistan from enhanced (expedited) to enhanced follow-up for outstanding requirements. Pakistan will continue to report back to the APG on the progress to strengthen its implementation of anti-money laundering and combating the financing of terrorism.

The rupee saw a volatile session in the interbank market during the outgoing week. It lost ground in the first three sessions due to increased dollar demand for import payments; following a spike in the international oil and coal prices.

The increase in the Real Effective Exchange Rate (REER) and surge in trade deficit in May also put pressure on the local unit.

The REER surpassed the 100-mark for the first time since February 2019 and recorded at 103.29 in April.

The trade gap sharply widened 134 percent year-on-year to $3.432 billion in May.

Despite these developments, the local currency managed to recover some losses, closing at 154.62 against the dollar on Friday.

The recovery in the local currency was due to increased growth in exports, as well as stable foreign exchange reserves.

The rupee weakened 0.14 percent against the dollar this week.

Analysts expect the REER to spike in May by touching the 105 level but may most likely stabilise or recede on the back of falling inflation in subsequent months.

Declining inflation has also put interest rates under pressure with bond yields falling a few basis points in the shorter tenors in the last T-bills auction.

Traders are looking for clues for a potential rate cut but analysts believe the current policy rate is the sweet spot and the path of least resistance.

Pakistan’s foreign exchange reserves increased to $23.294 billion during the week ended May 28 from $23.015 billion a week ago.

The forex reserves held by the State Bank of Pakistan (SBP) rose $272 million to $16.133 billion due to the official inflows.

The forex reserves of commercial banks slightly increased to $7.160 billion from $7.153 billion.