Karachi, December 10, 2023 – The Pakistani Rupee likely to stay stable against the dollar during next week starting on December 10, 2023.
The currency is expected to trade within a narrow range, supported by the anticipation of the International Monetary Fund (IMF) approving the next tranche of the bailout package for Pakistan. However, the currency faces challenges from a backlog of import payments and profit repatriation.
In the past week, the rupee demonstrated resilience by edging up 0.23 percent against the dollar in the interbank market, ultimately closing at 283.87 on Friday. Positive sentiments in the market, largely attributed to the optimism surrounding the expected IMF approval, have led experts to believe that the rupee will continue to trade in the range of 283-284 per dollar in the upcoming sessions.
Despite a $237 million decrease in the State Bank of Pakistan’s foreign exchange holdings within a week, mainly due to loan repayments, confidence remains high. The impending IMF tranche scheduled for next month is anticipated to boost reserves and provide much-needed support for the currency.
Last month, Pakistan and the IMF reached a staff-level agreement on the first review of a $3 billion bailout. The disbursement of the second tranche hinges on the approval of the Fund’s board, slated for January 11. The unexpected strengthening of the rupee amidst negative news surrounding IMF discussions, reserves, and remittances suggests a concerted effort by authorities to maintain stability in the currency market.
In the first five months of the current fiscal year, remittances from Pakistani nationals employed abroad experienced a 10 percent decline, totaling $11 billion. However, November witnessed a reversal in this trend, with remittances increasing to $2.2 billion, a 4 percent rise compared to the previous year. Despite a 9 percent month-on-month decline in remittance flows in November, the positive overall trajectory indicates a potential stabilizing factor for the rupee.
Looking ahead, while the rupee is expected to remain range-bound until the end of the year, several challenges loom on the horizon. These include the backlog of import and profit payments, the Real Effective Exchange Rate (REER) projected to cross the 100 per level, potentially entering an overvalued territory after 30 months, and the fate of IMF board approval.
The recent oscillation in the IMF’s stance, initially indicating a staff-level agreement and quick board approval, only to suggest a potential review next month, raises questions about the underlying dynamics. Whether this shift is due to an oversight in agenda items or a strategic move to encourage cooperation in terms of timely elections and international collaboration remains to be seen.
Investors and market participants are keenly awaiting the State Bank of Pakistan’s announcement of the monetary policy on December 12, which may provide further insights into the economic landscape and the central bank’s strategies to navigate the challenges ahead. As the nation awaits these developments, the stability of the rupee against the dollar continues to be a focal point for economic observers and stakeholders alike.
