KARACHI: Rupee may trade in range with a scope for slight losses largely because of uncertainty over International Monetary Fund’s (IMF) loan that continues to hang in balance, dealers said.
The local unit, which has fallen around 11 percent to the dollar since July, closed at 175.24 on Friday. It dropped to an all-time low of 175.73 on November 12.
“We may see a fall in volatility in the foreign exchange market due to the measures taken by the central bank, but the sentiments on rupee remain bearish as investors are still jittery due to uncertainty over IMF bailout, which has delayed the disbursement of the next $1 billion tranche of $6 billion loan programme,” said a forex dealer.
State Bank of Pakistan (SBP) met the heads of different banks on Thursday and warned them against currency speculation. The speculative trading added to the unnecessary demand in the recent days. Importers were panicking so they were buying in anticipation of a dollar shortfall as inflows almost dried amid delay in the resumption of the IMF loan facility.
The speculated outflow of dollars due to the Afghanistan issue was also responsible for declining foreign exchange reserves.
The SBP asked banks to avoid undue currency positions. “The internal staff and customers need to be given clear communication about the stability of the environment and that it is moving in the positive direction,” it said.
The SBP raised the policy rate by 150 basis points to 8.75 percent. The much higher increase surprised the market participants amid a shift in SBP's previous stance of gradual and measured increase.
However, the market consensus was a 75-100 bps increase.
The SBP attributes this policy shift to an abrupt increase in inflation and balance of payment expectations. Wherein, the current account deficit is likely to meagerly exceed the previous expectation of 2-3 percent of GDP, while inflation is also expected to exceed the SBP estimates of 7-9 percent.
The current account deficit rose to $5 billion in the first four months of the current fiscal year against a surplus of $1.3 billion in the same period last year, pointing to a strong turnaround in both domestic demand and global commodity prices.
According to a report issued by Insight Securities, imports remained at a higher trajectory with PKR/USD parity being a function of trade balancem which devalued by 3.4 percent since the last MPC meeting.
However, it added that according to MPC (Monetary Policy Committee), rupee devaluation was relatively high in comparison with most emerging market currencies, except Turkey and Thailand.
“We believe adjustment in policy rate will end the prevailing uncertainty around
inflation figures, which are expected to remain in double digits due to high commodity prices, PKR/USD devaluation and expected increase in electricity and gas tariffs,” the report said.
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