The Pakistani rupee is projected to maintain stability against the US dollar in the upcoming week, supported by ample dollar supplies and a steady increase in foreign exchange reserves. After experiencing minor fluctuations in the interbank market over the past week, the rupee is expected to trade within current ranges as foreign inflows continue to sustain the local currency.
During the previous week, the rupee displayed slight volatility, closing at 277.66 per dollar on Monday, dipping marginally to 277.74 on Tuesday, and ending the week at 277.61 per dollar on Friday. Despite these fluctuations, market analysts remain optimistic about the rupee’s stability, citing robust dollar liquidity in the market and consistent improvements in foreign exchange reserves as key factors bolstering the currency.
Pakistan’s foreign exchange reserves surged to a two-year high of $16.111 billion as of October 11, marking a substantial recovery. The reserves held by the State Bank of Pakistan (SBP) increased by $215 million, bringing the central bank’s total to $11.02 billion, the highest level since April 2022. These reserves are now sufficient to cover over two months of imports, providing a crucial buffer for the economy. However, reserves held by commercial banks saw a decline of $150 million, standing at $5.089 billion.
The recent boost in reserves can be attributed to the disbursement of the first tranche of $1.03 billion from the International Monetary Fund (IMF) under the $7 billion Extended Fund Facility. Additionally, a reduction in the current account deficit, coupled with strong remittance inflows and improved export performance, has further contributed to the strengthening of foreign reserves.
Market participants and economic analysts also anticipate a potential cut in interest rates by the SBP at its upcoming Monetary Policy Committee (MPC) meeting on November 4. Inflation has shown signs of easing, with October’s inflation rate expected to fall between 6.5% and 7%. This has fueled speculation that the central bank may lower interest rates for the fourth consecutive time.
While some traders are predicting a more aggressive rate cut of 250 to 300 basis points, market experts believe the SBP will likely opt for a more measured approach. A more rapid reduction in rates could affect capital inflows, especially with other emerging markets such as Turkey, Egypt, and Nigeria offering more attractive interest rates. Analysts also suggest that a stable rupee outlook over the coming months could encourage exporters to hedge part of their currency exposure, mitigating potential risks in a declining interest rate environment.
Overall, the rupee is expected to hold steady, with sufficient dollar inflows and improving economic indicators providing support in the weeks ahead.