Karachi, January 7, 2024 – The Pakistani Rupee (PKR) is gearing up for a significant uptrend against the US dollar in the upcoming week, propelled by recent foreign inflows and the anticipated approval of funds by the International Monetary Fund (IMF).
Investor optimism is on the rise, and the rupee is expected to strengthen further, potentially trading below the 280 mark per dollar in the coming weeks. This positive trend is being driven by robust exports, leading to increased sales of the greenback, and the hopeful prospect of augmented foreign exchange reserves from external partners.
The prevailing positive sentiments are particularly notable ahead of the International Monetary Fund’s (IMF) board meeting scheduled for January 11. During this meeting, the global lender is anticipated to give the green light for the release of the next $700 million tranche from its existing loan program for Pakistan.
Looking ahead, experts predict that the rupee will continue its upward trajectory against the US dollar, possibly trading below 280 in the near future. This follows modest gains in the interbank market this week, with the rupee closing at 281.40 on Friday, buoyed by strong economic data and increased dollar selling by exporters.
Market analysts point to a key factor in the form of a mysterious inflow in reserves. The undisclosed origin of the significant increase of over $1 billion in reserves over the past two weeks raises questions but also signifies Pakistan’s continued relevance in the global economic landscape. This influx is seen as a positive indicator for the IMF’s impending tranche approval and diminishes concerns about the timing of upcoming elections.
As of December 29, Pakistan’s foreign exchange reserves held by the State Bank of Pakistan surged to $8.221 billion. Anticipation is mounting for the next IMF tranche after the board meeting, with expectations of a substantial boost to reserves through accelerated multilateral inflows.
The narrowing trade deficit, currently standing at $1.7 billion, fuels optimism for another month of current account surplus. Additionally, increased inflows in the special convertible rupee account (SCRA) related to the Pakistan Stock Exchange (PSX) suggest improved liquidity levels.
In the battle against inflation, a stronger rupee acts as a check on price hike expectations, aligning with the government’s policy objectives. Secondary market bond yields indicate a potential interest rate cut by March 2024, driven by expectations of decreasing inflation.
However, the escalating Gaza conflict poses a significant risk to the rupee’s surge. Recent geopolitical developments, including Israel’s targeted assassination and subsequent events in the Middle East, have heightened tensions. The vow of revenge from Iran adds an element of uncertainty that could impact the currency markets.
While exporter concerns may temper the rupee rally, experts project the currency to test its highs of 277 per dollar before the end of this month. The rupee stands out as one of the top three best-performing currencies in Asia, gaining 0.1 percent against the US dollar this week and 1.8 percent so far in the fiscal year. In comparison, the Indian rupee saw a 0.1 percent increase, and the Sri Lankan rupee gained 0.5 percent against the US dollar this week.
With positive economic indicators and potential IMF support, the Pakistani Rupee is positioned for a strong surge against the US dollar in the coming weeks, despite external geopolitical uncertainties.
