Karachi, August 4, 2024 – The Pakistani rupee is projected to maintain its stability in the upcoming week, buoyed by optimism surrounding the anticipated approval of a new loan program from the International Monetary Fund (IMF) this month, according to currency dealers.
The local currency exhibited a narrow trading range against the US dollar in the interbank market this week. On Monday, the rupee closed at 278.5, followed by a slight dip to 278.74 on Wednesday, before recovering to 278.50 on Friday.
A currency dealer expressed confidence in the rupee’s stability, attributing it to typical importer dollar demand and the anticipated IMF loan approval of $7 billion. Finance Minister Muhammad Aurangzeb’s statement regarding the expected IMF board approval by the end of the month further reinforced this outlook.
The minister also hinted at an anticipated $12 billion rollover from friendly nations.
Market sentiment has been positively influenced by ample dollar liquidity and the prospect of a current account surplus in July. Additionally, a modest increase in foreign exchange reserves has provided support to the rupee.
Pakistan’s trade balance data for July, released by the Pakistan Bureau of Statistics, revealed a trade deficit of $1.948 billion. However, the country’s foreign exchange reserves held by the central bank climbed by $75 million to $9.1 billion as of July 26.
The improvement in the current account deficit, driven by increased exports, remittances, and financial inflows, contributed to the buildup of the central bank’s reserves.
The State Bank of Pakistan (SBP) expressed optimism about managing external debt obligations effectively due to improving foreign fund inflows and manageable current account deficits. The central bank aims to boost its reserves to $13 billion by the end of the fiscal year.
Pakistan faces a significant external debt repayment of $24.8 billion in the upcoming fiscal year.
In response to easing inflation pressures and external account improvements, the SBP reduced its benchmark interest rate by 100 basis points to 19.5 percent on Monday.
The central bank anticipates a modest increase in imports aligned with the growth outlook. However, it expects continued robust growth in workers’ remittances and export growth to contain the current account deficit within the range of zero to 1.0 percent of GDP in the current fiscal year.
The current account deficit for the previous fiscal year narrowed significantly to 0.2 percent of GDP from 1.0 percent in the preceding year.