In the wake of ongoing negotiations with the International Monetary Fund (IMF), analysts predict the Pakistani Rupee (PKR) to maintain its stability against the US Dollar in the upcoming week, commencing from March 18.
This anticipation is primarily contingent upon the successful conclusion of discussions regarding the $3 billion stand-by arrangement and the consequent interest rate maintenance.
During the preceding week in the interbank market, the Pakistani Rupee witnessed marginal gains against the US Dollar. Opening at 279.07 against the dollar on Monday, it closed at 278.74 by Friday, reflecting a 0.11 percent increase in the value of the local currency over the five trading sessions. Experts suggest that unless unforeseen developments concerning the IMF occur, the Rupee is likely to remain within a narrow range. However, any potential deviation, such as a rate cut, could trigger fluctuations in the currency’s value.
The ongoing four-day review of Pakistan’s loan program by the IMF, especially with the existing Stand-By Arrangement (SBA) set to expire in April, holds considerable significance. A favorable outcome by March 18 could potentially lead to the release of the final tranche of approximately $1.1 billion. The government remains optimistic about securing an IMF staff-level agreement post-review.
The State Bank of Pakistan (SBP) is widely expected to uphold its benchmark interest rate at a historic 22 percent for the sixth consecutive policy meeting on Monday, attributing this decision to persistent inflationary pressures. Despite this, many analysts foresee a potential rate cut in the second quarter of the year. Some analysts even perceive an opportunity for a rate adjustment at the upcoming review meeting next week, fueled by the stabilization of the Rupee and expectations of further depreciation of the US Dollar.
While downward pressure on the US Dollar may persist, the SBP is likely to intervene by purchasing excess dollar liquidity to maintain market stability. As of March 8, the country’s foreign exchange reserves held by the State Bank of Pakistan slightly increased by $17 million to reach $7.913 billion.
Swap premiums have shown signs of receding from recent highs, reflecting market sentiments of declining interest rates, forward selling interest from exporters, and relatively lower dollar liquidity in the interbank market. Despite an upcoming bond repayment of $1 billion scheduled for next month, analysts predict a gradual decline in swaps, albeit at a slow pace.
In light of compelling rationale and supported data, there appears to be no justification for maintaining elevated interest rates. Despite headline inflation initially appearing high, it has significantly declined, with March inflation expected to hover around 20 percent, and core inflation also projected to decrease to 16 percent. This suggests a positive real interest rate on a forward-looking basis.
As Pakistan navigates through these economic dynamics, stakeholders eagerly await the outcome of the ongoing negotiations with the IMF, recognizing its potential implications on the stability of the Rupee and the broader economic landscape.
