Rupee may rebound next week

KARACHI: Rupee is expected to heave a sigh of relief next week as inflows from Saudi Arabia are set to give Pakistan’s foreign exchange reserves a much-needed lift, traders said.

“Saudi Arabia has deposited $3 billion in the central bank account under its economic support package; it would boost reserves and ease pressure on the rupee in the near-term,” said a trader at one commercial bank.

“The timing of the Saudi financing is also important as the current account deficit for November seems to be much higher than expected amid steeper rise in imports,” he added.

Besides, October’s Real Effective Exchange Rate (REER) level indicates some improvement might be seen in rupee going forward, according to analysts.

The rupee tumbled and closed to an all-time low of 176.77 per dollar in the interbank market on Friday. The decline stemmed from bad economic news.

One of the reasons that devastated investors morale on rupee was monthly trade deficit that hit an all-time high in November. Trade gap widened 117 percent to 20.8 billion.

The country’s forex reserves also dipped by another $275 million to $22.5 billion. Moreover, the Consumer Price Indexinflation rose to 11.5 percent in November from 9.2 percent in the previous month.

It was also expected to be higher. This is not core inflation and is thought of as being transitory.

The stock market had a difficult day on Thursday as the KSE-100 Index plunged 2000+ points with aggressive selling led by a single segment of the bourse in a shallow market.

It was an overreaction but created panic affecting the other markets as well.

State Bank of Pakistan held a T-Bill auction on Wednesday, where the government raised Rs504 billion.

The cut-off yields on six-month T-Bills unexpectedly increased by 300 basis points to 11.5 percent.

“Incorporating the recent hike of 150 basis points, the new cut-offs were higher and could potentially be interpreted as

rising interest rates and pricing in future hikes,” said Tresmark in a client note on Saturday.

The six-month KIBOR (Karachi interbank offered rate) and secondary market

treasury bond rates (PKRV) have so far seen a rise of 2.34 percent and 2.31 percent since the pre-November monetary policy statement.

“Currently, the market needs someone to soothe the nerves. And nothing would be better than providing liquidity to boost confidence,” Tresmark report said.