KARACHI: The Pakistani rupee is expected to maintain stability against the US dollar in the coming week, supported by ample dollar liquidity, healthy remittances, and reduced imports driven by declining global oil prices.
The rupee, which has seen a relatively steady trend over the past few months, showed moderate gains in the interbank market this week. On Friday, it closed at 278.16 per dollar, following the announcement by the International Monetary Fund (IMF) that its board would meet on September 25 to review Pakistan’s $7 billion loan program. Earlier in the week, the rupee had closed at 278.7 on Monday.
State Bank of Pakistan (SBP) Governor Jameel Ahmad stated that the government had secured over $2 billion in external financing to address the funding shortfall required to meet IMF conditions. This announcement followed the SBP’s decision to cut the interest rate by 200 basis points, bringing it down to 17.5%.
According to a report published by Tresmark on Saturday, remittances to Pakistan have surged from $2 billion to over $3 billion in recent months. The report highlighted that this substantial increase in remittances had gone largely unnoticed despite its importance in stabilizing the rupee. A critical factor contributing to this rise in remittances was the narrowing gap between official and grey market exchange rates. While this gap had widened recently due to political uncertainty and skepticism around the IMF program, the green light from the IMF is expected to help stabilize this difference moving forward.
Looking ahead, analysts expect remittances to remain robust, providing surplus dollar liquidity in the market. The dollar index is expected to remain subdued, and with the real effective exchange rate (REER) consistently below 105, significant depreciation of the rupee seems unlikely. Furthermore, with local market demand remaining weak, and oil prices staying suppressed, there is no immediate pressure from higher imports.
The analysis indicates that the USD/PKR exchange rate is likely to close the year around the resistance level of 282 per dollar. The rupee had depreciated by 20% against the US dollar in 2023, closing at 281.86 on December 29, 2023. However, in 2024, the currency has regained some strength, supported by the IMF’s stand-by agreement, a contained current account deficit, and reduced political instability.
A report by Insight Securities this week noted that while the sharp devaluation in FY23 caused significant hardship for the public due to structural economic weaknesses and soaring inflation, the outlook for the coming months appears more optimistic. Pakistan is expected to report a current account surplus due to subdued domestic demand and favorable global commodity prices. Imports, which are currently averaging $4.5 billion per month, are expected to remain subdued due to the ongoing slowdown in domestic demand, helping contain the current account deficit (CAD) in the next few quarters.
Remittances, which had been sluggish during 2023 due to domestic uncertainty and the gap between official and unofficial exchange rates, have started to recover and are approaching 2022 levels. This recovery in remittances is expected to continue, as political and economic uncertainty has somewhat subsided, and concerns over a sharp devaluation of the rupee have diminished.
