Rupee to remain range bond

KARACHI: The rupee is expected to remain stable in the near-term as market players to take limited positions ahead of forthcoming talks with the International Monetary Fund on sixth review of $6 billion Extended Fund Facility, dealers said.

“We may have a sort of a breather in the foreign exchange market over the next week as the steps were taken by the central bank will slow down imports and subsequently demand for the greenback,” said a foreign exchange trader.

He added that the direction of the local currency will depend on how the IMF negotiations evolve next week.

“Most players [investors and importers] are unlikely to build long positions during IMF talks.”

The staff level discussions between Pakistan and the IMF are expected to begin from Monday, while the Finance Minister is also scheduled to attend annual meetings of the World Bank and the IMF from October 11-17th in Washington. The Fund will hold a review of the health of the country’s economy under Article-IV. Successful negotiations will pave the way for releasing $1 billion disbursement from the IMF and also help support the rupee in the months ahead.

The rupee remained volatile this week, hitting an all-time low closing of 170.66 to the dollar in the interbank market. Dollar demand from importers ballooned due to increased import payments. Higher current account deficit and a spike in international oil prices also continued to put pressure on the local unit.

The recent bill moved by a group of US Senators, which is seeking to impose sanctions on the Afghan Taliban and entities providing support for them including Pakistan, is also affecting sentiment on the rupee.

However, the domestic currency managed to recover some lost ground as a result of a measure taken by the State Bank of Pakistan to arrest the rupees’ decline. The SBP imposed a 100 percent cash margin requirement on the import of 114 items, in an attempt to reduce imports and lower the current account deficit.

Analysts said Pakistan has the additional burden to confront increasingly complex fallout from the geopolitical situation. The first and foremost economic challenge is navigating the IMF minefield.

“The IMF is not only important as a lender of last resort, but its endorsement is also significant for raising any kind of foreign denominated funding. And let’s not forget the FATF conundrum,” said an analyst at Tresmark, in a weekly client note.

“Let’s also not forget that earlier this year, the IMF programme was suspended as the Government had more growth-oriented policies in mind and a favourable middle ground could not be met.”

Six months down the line, the government is more desperate for populists measures while IMF, lacking any persuasion from the US, may be thinking of more stringent measures.

Pakistan has the external financial requirement of well over $22 billion this year, including funding for the rising current account deficit as well as the repayments of foreign loans.