Karachi, May 5, 2024 – The Pakistani rupee is expected to hold its ground in the upcoming week starting May 6, 2024, buoyed by optimistic sentiments as the country anticipates a new round of discussions with the International Monetary Fund (IMF).
The IMF mission is slated to visit Pakistan on May 15 to finalize the details of a potential $6–$8 billion bailout under the Extended Fund Facility program.
Finance Minister Muhammad Aurangzeb has hinted at a possible staff-level agreement by early July, suggesting that preliminary talks for the new funding have been positive. The financial markets have responded well to these developments, with expectations of continued stability in the exchange rate.
A local foreign exchange trader noted that there should be no significant shifts in the rupee’s value in the immediate future. “The demand and supply dynamics of the US dollar are currently well-balanced, and the general outlook on Pakistan’s economic situation is looking up,” the trader commented.
This positive market sentiment has been further reinforced by recent interactions on the international stage, including Prime Minister Shehbaz Sharif’s visit to Saudi Arabia, and favorable indications from ongoing discussions with the IMF.
Over the past week, the rupee experienced some fluctuations in the interbank market. It opened at 278.39 against the dollar on Monday and strengthened slightly to close at 278.20 on Friday. This improvement was largely attributed to the disbursement of a $1.1 billion tranche from the IMF under a previous $3 billion stand-by arrangement, which bolstered Pakistan’s foreign exchange reserves to the $9 billion mark.
Despite not implementing a rate cut, market analysts anticipate that the rupee will maintain its current levels. The State Bank of Pakistan (SBP) held its benchmark interest rate steady at a record high of 22 percent on April 29, marking the seventh consecutive hold. The Monetary Policy Committee (MPC) of the SBP cited that real interest rates remain positively positioned on a forward-looking basis, which has helped stabilize expectations despite inflation rates peaking above 30 percent.
In addition to the stable outlook for the next month, analysts forecast a gradual depreciation of approximately 2 rupees per month starting in June, with an estimated range of 292-295 by December 2024. This projection aligns with the SBP’s new inflation target of achieving 5-7 percent by September 2025.
Market participants are now grappling with the central bank’s transition from a forward-looking inflation stance to a defined inflation target. This shift comes amidst the backdrop of the U.S. Federal Reserve’s indications of maintaining higher interest rates for an extended period, and the IMF’s upcoming review, which could influence future economic policies.
As these elements converge, the rupee is expected to remain relatively stable, with slight adjustments reflective of broader economic trends and policy decisions. The forthcoming weeks will be crucial for Pakistan’s financial trajectory as stakeholders closely monitor the outcomes of the IMF negotiations and their implications for the country’s economic stability.
