Karachi, October 8, 2023 – The Pakistani rupee (PKR) is poised to continue its ascent against the US dollar in the coming week as Pakistan implements various restrictions on Afghan transit trade.
Experts anticipate that the rupee may strengthen beyond the PKR 280 mark against the dollar, with several factors contributing to this positive outlook.
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The PKR closed at 286.76 against the dollar in the interbank market at the end of Monday’s trading session. Throughout the week, the local currency experienced a steady rise, reaching 282.69 by Friday, marking a weekly gain of 1.4 percent.
Analysts suggest that the rupee is on track to surpass the crucial 280 level against the dollar, facing only minor resistance near the 275 level.
Several factors are expected to bolster the rupee’s performance, including the country’s prospects of securing the next tranche of financial support from the International Monetary Fund (IMF). Additionally, improvements in the nation’s balance of payments and efforts to curb illegal dollar trading are enhancing investor confidence.
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The following factors are contributing to the rupee’s potential strengthening:
IMF Approval: The IMF appears to be moving closer to granting approval for the next tranche of financial assistance, which will provide further support to the rupee.
Reduced Smuggling: The closure of the Afghan border has significantly reduced smuggling activities, particularly in the trade of gold, which had been a primary conduit for wealth transfer.
Expected Current Account Surplus: The current account is expected to show a surplus, in part due to government actions to curtail the misuse of Afghan Transit Trade (ATT) and the decrease in oil prices.
Remittances: Remittances are expected to surpass expectations, providing an additional boost to the country’s foreign exchange reserves.
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The recent trade deficit figures for Pakistan have shown a positive trend. This improvement, coupled with an increase in remittances, raises the possibility of a potential current account surplus, countering the deficit observed in the preceding months of July and August.
During the first quarter (July-September) of the current fiscal year, Pakistan’s trade deficit decreased by 42 percent year-on-year to $5.3 billion. In August, the current account deficit plummeted to $160 million, marking a 79 percent decrease from the same month the previous year. Over the first two months of FY2024, the current account deficit declined by 54 percent to $935 million, primarily due to reduced imports.
In July, the IMF approved a $3 billion bailout package for Pakistan, providing much-needed financial assistance. The country received $1.2 billion from the IMF as the first tranche of a standby arrangement in July, with the second review of the loan program scheduled for November.
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The PKR experienced a 6 percent depreciation against the dollar when the caretaker government took office in August. However, a subsequent 8 percent appreciation, from 307 to 282, occurred in five weeks thanks to government and State Bank of Pakistan interventions aimed at curbing currency smuggling, hoarding, and speculation, particularly in the open market. Moreover, the open market’s premium over the bank rate decreased to just 0.1 percent from a peak of 7.4 percent on September 1.
As Pakistan takes measures to secure its economic stability, the PKR’s ongoing strength against the dollar reflects growing confidence in the country’s financial prospects.
