Karachi, January 14, 2024 – The Pakistani Rupee (PKR) is anticipated to stand firm against the US Dollar in the week commencing January 15, 2024, following a notable appreciation in the previous week where it traded at 280 to the dollar.
Closing at 281.28 in the interbank market on Monday, the rupee exhibited resilience by concluding the week at 280.36, marking a 0.32 percent increase against the dollar over the last five sessions.
A recent note from financial terminal Tresmark attributes the rupee’s gain to exporters engaging in substantial forward-selling of dollars. Furthermore, the boost in foreign exchange reserves and the International Monetary Fund’s (IMF) approval for the release of approximately $700 million from a $3 billion bailout for Pakistan contributed to the rupee’s strengthened position.
Analysts studying last week’s price action believe that the Central Bank is providing support at the 280 level, suggesting that any dip below this mark may be temporary. Historical data indicates that during the last phase of Rupee consolidation, the USD/PKR pair remained below 280 for only 12 days. Analysts predict the rupee to remain anchored around the 280 level leading up to the elections, with occasional deviations on both sides.
Despite facing challenges related to the cash flow crisis, Pakistan has managed to navigate through the financial turbulence, partly owing to the fresh tranche from the IMF. However, the report emphasizes that steering through the election period remains a formidable challenge.
The report highlights several positive developments in the first few days of the new year, including robust remittances, the potential for a current account surplus, commitment to privatization, and ongoing tax reforms. The overall market sentiment remains positive, with bond markets reflecting a decline in interest rates, a rally in Eurobonds, and a strengthened Rupee. However, the report also cautions that the future trajectory, particularly over the next few months, remains uncertain, as indicated by Pakistan’s credit default swap (CDS), which, although lower, still ranks among the highest in the world.
In a significant move, the IMF executive board recently completed the first review of Pakistan’s economic reform program supported by the stand-by arrangement (SBA), approving a loan on Thursday. This decision is expected to instill confidence in other lenders and markets amid the unpredictability surrounding Pakistan’s upcoming elections.
As the caretaker government manages the affairs in Pakistan, elections, initially scheduled for February 8, have faced multiple postponements. The Senate, in response to concerns such as severe winter weather in the north and security issues, approved a non-binding motion last week to potentially delay the polls further. The IMF is anticipated to disburse a second tranche of $700 million either over the weekend or early next week, further bolstering Pakistan’s foreign exchange reserves and bringing the total IMF disbursement under the SBA to $1.9 billion.
