Rupee Likely to Stay Stable on Current Account Surplus

Rupee Likely to Stay Stable on Current Account Surplus

Karachi, May 19, 2024 – The Pakistan rupee is expected to remain stable against the US dollar in the upcoming week starting May 20, 2024, buoyed by a current account surplus recorded in April 2024.

Analysts believe that positive indicators from the external sector will help maintain the rupee’s stability in the coming days.

Over the past 12 months, the rupee has emerged as Asia’s top-performing currency, appreciating by 2.5 percent against the US dollar, reflecting the country’s improving macroeconomic outlook. This performance is largely attributed to an International Monetary Fund (IMF) loan and a series of foreign exchange market reforms.

The rupee’s strength is underpinned by the IMF’s $3 billion loan program, which, combined with stringent monetary and fiscal measures, has bolstered the currency. Data from Topline Securities indicates that the rupee gained 2.5 percent against the US dollar from May 17, 2023, to May 17, 2024. In comparison, the Sri Lankan rupee increased by 2.2 percent over the same period.

“After years of volatility, the Pakistani Rupee is finally showing signs of stability,” said Muhammad Sohail, CEO of Topline Securities. “Over the past year, the Pakistani Rupee has emerged as the best-performing currency among Asian emerging and frontier markets.”

The data further reveals that in the current fiscal year, the rupee has appreciated by 2.9 percent against the dollar, with the Sri Lankan currency rising by 2.8 percent.

“The IMF stand-by loan, coupled with strict monetary and fiscal tightening, has supported the currency over the past year. Support from bilateral lenders and a low current account deficit have also helped the rupee,” Sohail added.

Last month, Pakistan successfully concluded the IMF’s short-term stand-by arrangement program, which was pivotal in averting a sovereign default. The IMF loan, along with external funding from bilateral and multilateral sources and import restrictions, has significantly improved the country’s foreign exchange reserves and current account balance.

A crackdown on illicit currency activities, including the smuggling of foreign currencies, and exchange business reforms implemented by the State Bank of Pakistan (SBP) in September, have also alleviated pressure on the currency. These measures resulted in a substantial reduction in the exchange rate differential between the open market, interbank, and grey markets.

Traders are speculating about the potential for the exchange rate to decline before the IMF’s next program. Pakistan’s government is currently negotiating with the global lender for a longer and more substantial loan program. There is an anticipation that currency depreciation may be a prerequisite for the new IMF program, and traders expect that the local currency might weaken slightly before securing the new bailout.

The latest IMF country report emphasizes the need for external account assessments, highlighting the importance of the currency rate as a shock absorber and advising against import restrictions. The report suggests that further actual depreciation may be necessary to eliminate these restrictions.

As the Pakistani rupee continues to navigate the challenges and opportunities of the global financial landscape, its recent performance provides a measure of optimism for economic stability and growth in the months ahead.