Karachi, November 19, 2023: The Pakistani Rupee (PKR) is anticipated to extend its upward trajectory against the US dollar in the upcoming week starting November 20, 2023.
The optimistic outlook is attributed to increased dollar sales by exporters and favorable economic indicators stemming from the recent agreement with the International Monetary Fund (IMF) for the next tranche of loans.
The rupee experienced a notable recovery of 0.36 percent against the dollar over the past week, marking a turnaround after a 17-day losing streak. The interbank market witnessed a rise from PKR 287.55 on Monday to PKR 286.50 on November 17.
The positive momentum can be largely attributed to the optimism generated by the IMF review and the subsequent positive response, which bolstered investor confidence in the country’s economy. Analysts predict that this rally is poised to continue as market inflows show signs of improvement. Exporters are reentering the market, anticipating further rupee appreciation in the coming days. The market is currently witnessing improved supplies and a positive economic outlook, further supporting the strengthening of the local currency.
A crucial development contributing to this positive trend was the staff-level agreement reached on Wednesday between IMF staff and Pakistani authorities during the first review under Pakistan’s stand-by arrangement (SBA). Subject to approval by the IMF’s executive board, this agreement is expected to bring approximately $700 million to Pakistan, bringing the total disbursements under the SBA to nearly $1.9 billion.
In response to the staff-level agreement, key figures in the Pakistani government, including the caretaker prime minister, interim finance minister, and the governor of the State Bank of Pakistan, expressed optimism, reinforcing positive sentiment. However, there were reports of market tactics aimed at depreciating the local currency, including the postponement of import payments, restrictions on new letters of credit issuance, and intensified oversight in market trading.
Despite these challenges, exporters have begun selling forwards again, even as forward premiums experienced a 30 percent decline, with one- and three-month premiums ending the week at 190 and 430 paisa, respectively.
Market estimates now suggest that the Rupee is likely to strengthen to around 282 against the US dollar, prompting the State Bank of Pakistan to resume its dollar buying. Positive news, such as multilateral lending and approvals from the IMF’s executive board, are expected to maintain the Rupee’s buoyancy.
The government remains optimistic about the increase in foreign exchange reserves following the impending IMF loan installment, projecting an upward trend from the current $12.5 billion as of November 10. Additionally, improving remittances and exports, along with a shrinking current account deficit for October ($100 million), contribute to positive economic indicators. It is projected that Pakistan will secure approximately $1.2 billion in financing from the World Bank, Asian Development Bank, and Asian Infrastructure Investment Bank by year-end. Inflows from Saudi Arabia and the United Arab Emirates are also anticipated to support the country’s economy.
Global factors, including a 17 percent decrease in global oil prices (Brent) over the last 20 days, from $97 to $80 per barrel, further contribute to the positive economic landscape. Treasury bills and bonds’ cut-off yields are on a downward trend, and with a tight monetary policy and base effect, inflation is expected to significantly decline starting in January. Forward-looking interest rates remain positive, indicating a favorable economic outlook.
