Karachi, December 3, 2023 – Anticipation of the International Monetary Fund’s (IMF) approval of the next $700 million tranche under its $3 billion Extended Fund Facility (EFF) arrangement has fueled optimism in Pakistan’s currency market, leading to a strengthening of the rupee against the dollar.
The interbank market witnessed a positive trajectory for the rupee in the past week, with the currency gaining 0.23% against the dollar to close at 284.97 on Friday.
Despite the modest uptick, analysts attribute the recent rupee rally to a combination of positive economic data and events. The country’s foreign exchange reserves have shown signs of improvement, with the State Bank of Pakistan’s (SBP) reserves increasing by $77 million to reach $7.257 billion by the week ending November 24. Overall reserves, including those held by commercial banks, rose by $91 million to $12.393 billion.
In addition, Saudi Arabia’s extension of its $3 billion deposit with the SBP for an additional year, set to mature on December 5, has provided a boost to market sentiment. The renewal of this facility is expected to play a crucial role in sustaining Pakistan’s foreign exchange reserves and addressing external account challenges.
Looking ahead, market expectations are high for the IMF board to approve the second tranche of $700 million on Thursday. While the amount may seem modest, it holds the potential to drive the USDPKR exchange rate to the 280-282 range. At this level, the Central Bank is poised to engage in dollar purchases to reinforce its reserves.
A survey gauging opinions on the interbank market’s exchange rate outlook for 2024 revealed that a majority of respondents anticipate the PKR/USD parity to remain within the range of Rs270 to 330. This suggests that market participants are cautiously optimistic about the rupee’s performance in the coming year, with expectations anchored around the IMF program and its impact on the country’s economic stability.
In conclusion, the recent strengthening of the rupee reflects growing optimism in Pakistan’s economic trajectory. The IMF’s potential approval of the next tranche and the Saudi Arabian deposit extension have instilled confidence in the currency market. As Pakistan continues to implement reforms under the IMF program, the rupee is likely to find further support, paving the way for a more stable exchange rate environment.