Karachi: The Pakistani rupee is anticipated to maintain its current range against the US dollar in the coming week, as market participants closely monitor the State Bank of Pakistan’s (SBP) upcoming interest rate decision.
Traders and analysts believe that the rupee’s recent stability is likely to persist until the central bank’s monetary policy committee (MPC) announces its decision on Monday. While a widely expected 100 basis point interest rate cut is on the cards, it is not expected to trigger significant volatility in the currency market.
The market’s overall sentiment is cautiously optimistic due to Pakistan’s recent agreement with the International Monetary Fund (IMF) for a $7 billion loan. This agreement has bolstered confidence in the country’s economic outlook, as it is seen as a crucial step toward stabilizing Pakistan’s external position and rebuilding its foreign exchange reserves. However, experts caution that the rupee’s long-term stability hinges on the successful implementation of economic reforms and the resolution of pending issues with the IMF.
Despite recent improvements in inflation, analysts predict a relatively modest interest rate reduction. Factors such as elevated inflation, persistent deficits, the need for currency stability, and high global interest rates are influencing the central bank’s decision. In June, Pakistan’s inflation rate eased to 8.9%, down from a peak of 11.1% earlier in the year. However, inflationary pressures remain a concern, driven by high energy prices and supply chain disruptions.
Furthermore, the government’s focus on maintaining currency stability for political reasons is also playing a role in the rupee’s current behavior. The upcoming general elections are prompting the government to prioritize economic stability to garner public support. The administration’s efforts to control inflation and manage the fiscal deficit are seen as essential to maintaining voter confidence.
Experts warn that any push for accelerated economic growth could lead to rupee depreciation unless accompanied by substantial progress in the IMF program, including debt restructuring negotiations with China. Pakistan’s debt to China has been a significant concern, with repayments looming large over the country’s economic horizon. Successful negotiations with Chinese creditors are deemed critical to ensuring the sustainability of Pakistan’s debt profile.
Additionally, the global economic environment is exerting pressure on the rupee. The US Federal Reserve’s interest rate hikes have strengthened the US dollar, making it more challenging for emerging market currencies like the Pakistani rupee to gain ground. The interplay of these domestic and international factors will be crucial in determining the rupee’s trajectory in the near term.
While the rupee is expected to remain steady in the immediate aftermath of the SBP’s interest rate decision, its long-term stability will depend on a confluence of factors, including the successful implementation of economic reforms, the resolution of pending issues with the IMF, and the outcome of debt restructuring negotiations with China. The government’s ability to manage these challenges effectively will be key to maintaining confidence in the Pakistani currency.