Karachi, November 26, 2023 – The Pakistani Rupee (PKR) is anticipated to remain under pressure against the U.S. dollar in the upcoming week starting November 27, 2023, as currency analysts suggest a narrow trading range due to mixed economic signals impacting the country’s currency.
Throughout the current week, the rupee experienced fluctuations against the greenback. Optimism prevailed during the first three sessions, driven by positive sentiments surrounding the completion of the first review of the International Monetary Fund’s (IMF) loan program and a significant reduction in the current account deficit.
Despite these gains, the latter part of the week saw a reversal in fortunes, with importers driving demand for dollars and exporters showing hesitancy in selling their foreign exchange holdings. The rupee also grappled with mounting inflation, diminishing foreign exchange reserves, and uncertainty regarding the future interest rate outlook.
Closing at 285.37 against the dollar on Friday, the rupee managed to gain 0.20 percent for the week, compared to the opening rate of 285.97 on Monday. However, the outlook for the forthcoming week hinges on the actions of importers and businesses, who may seek dollars to meet their end-of-month demands, and exporters, whose participation in the market remains uncertain.
Analysts project the rupee to trade within a range of 285-286 against the dollar next week, barring any significant positive or negative developments. They note that the rupee did not exhibit substantial losses in the past two trading sessions, attributing its resilience to the increase in the real effective exchange rate (REER) from 91.7 to 98.6. Additionally, the dwindling foreign exchange reserves, which decreased by $232 million, played a significant role.
Despite these factors, the prevailing consensus among analysts is that the primary cause of rupee weakness stems from the State Bank of Pakistan’s (SBP) actions. The SBP engaged in Sell Buy swaps to bolster forward premiums and subsequently initiated the purchase of dollars from the market to enhance reserves. Surprisingly, exporters remained relatively passive in selling forwards, despite the attractive premiums offered.
Looking ahead, analysts foresee the rupee to be range-bound and susceptible to news flows in the coming week. Importers and exporters are advised to adopt a cautious approach and monitor the market for any major positive or negative developments that could influence the currency’s trajectory.
In a concerning development, Pakistan’s forex reserves witnessed a decline of $233 million to $12.302 billion in the week ending on November 17. The reserves held by the State Bank of Pakistan also experienced a dip of $217 million, falling to $7.180 billion. Analysts have expressed apprehension, noting that these reserves are now sufficient to cover less than two months of imports, underscoring the need for strategic measures to stabilize the nation’s economic standing.
