Rupee seen anchored amid export dollar inflows

KARACHI: Rupee is reckoned to be stable on improved dollar liquidity from export proceeds, while investors are expected to mostly hang tight until International Monetary Fund’s (IMF) $6 billion loan programme comes along, traders said.

Rupee gained 62 paisas or 0.35 percent to close at 176.06 against dollar in the interbank market this week, supported by subdued dollar demand for import payments and forward selling of greenback from exporters.

Besides, the currency market celebrated National Assembly’s go-ahead to the minibudget that would end exemptions on sales tax amid fiscal tightening measures as well as the passage of legislature to grant State Bank of Pakistan (SBP) more autonomy. This move helped create positive sentiment among traders about the outlook for Pakistan’s economy.

Approval of these two bills from the parliament is the key condition set by IMF for the clearance of the sixth review of Pakistan’s Extended Fund Facility (EFF) by its executive board.

“Though, the rupee has room to consolidate its gains versus the dollar due to decent inflows from exporters and remittances, and insignificant importer demand, but we expect the local unit to trade cautiously as traders and investors await further clarity on IMF front,” said a currency dealer.

Also, the market is unsure if the IMF executive board approves the sixth review and allows disbursement of $1 billion tranche, accepting two bills passed in their present shape, or imposes more conditions, according to the dealer.

“The rupee is likely to hold at 176 level at least in the coming week,” he added.

Remittances from Pakistani citizens working abroad maintained an upward momentum and hit the highest level for the six months in July-December FY2022. Remittances rose 11.3 percent to $15.8 billion in the first half of this fiscal year.

According to an SBP report published on Saturday, Real Effective Exchange Rate (REER) clocked in at 98.54 as of November (rupee’s November closing was 175.20), compared with 96.39 in the previous month.

REER increased by 2.2 percent month-on-month, while it fell 1.2 percent so far this fiscal year. It dropped 4.3 percent from its recent peak of 103 in April, 2021.

“According to this [REER] data, rupee is still undervalued, but with December inflation numbers (both for Pakistan and trading partners) near record highs, this would be a key metric to watch out for,” Tresmark analysts said in a client note.

“But generally speaking, with high premiums and rupee having just undergone a depreciating spree, booking forwards on a part portfolio is a good trade to minimise risk for exporters,” it added.

Depleting foreign exchange reserves and rising foreign debt obligations have become a source of worry for the policymakers and the investors as well.

Analysts estimate the government will pay back $8.63 billion to the international creditors in the second half of FY2022. The country could face a balance of payments crisis if the IMF programme is not resumed by the end of this month or early February.