Rupee likely to hold ground

KARACHI: The rupee is expected to be little moved versus the dollar in coming week, as traders await clues on monetary policy due on March 8, dealers said.

The local unit continued following a range-bound trading pattern during the outgoing week, largely driven by supply and demand of the greenback in the market.

The rupee closed at 177.47 per dollar on Monday and weakened to 177.83 on Thursday. It managed to settle at 177.50 to the dollar on Friday.

“There are many factors, which can determine the rupee’s future course such as the high current account deficit due to skyrocketing global commodity prices caused by geopolitical tension, fast declining foreign exchange reserves, status quo on the Financial Action Task Force front, and evolving political crisis in the country,” said an foreign exchange trader.

Pakistan and the International Monetary Fund (IMF) are holding talks to complete the seventh review of the IMF $6 billion loan programme. If the talks remain successful, the IMF executive board could take up Islamabad’s request for approval of $960 million in loan tranche next month.

“The central bank’s monetary policy decision is being the key factor for setting the rupee direction,” said the trader.

“Most players seem to wait to see what the SBP [State Bank of Pakistan] decision and forecasts for the inflation and the current account deficit, and forward guidance on interest rates will be before taking positions,” he added.

"The rupee is unlikely to cross the existing 177 level in the coming days.”

The SBP’s assessment on the country’s economic outlook in the wake of the Russia-Ukraine war will also be of significance for the investors.

Most analysts expect the SBP’s Monetary Policy Committee (MPC) to keep the policy rate unchanged at 9.75 percent on Tuesday to sustain economic recovery and improvement in the inflation outlook following the government’s decision to not increase petroleum prices till June.

However, analysts are also ready to see any surprise move by the SBP. The SBP’s March policy stance and the forward guidance will be closely watched by investors and financial markets, given the surging global oil prices and pressure on the country’s external account.

The current account deficit in January stood at $2.6 billion, which was higher than expectations, taking the seven months deficit to $11.6 billion. Meanwhile, inflation clocked in at around 12.2 percent in February versus 13.0 percent in the previous month.