The rupee is expected to experience some volatility this month, trading within the range of PKR 278 to PKR 279. Limited dollar selling from exporters and the strength of the dollar against other major currencies are contributing to weak supplies and adding pressure to the rupee.
In the interbank market, the rupee closed at PKR 278.62 per dollar on Monday, dropped further to PKR 278.72 on Wednesday, but recovered slightly to end the week at PKR 278.57 on Friday. According to a weekly report by Tresmark, a financial markets terminal, the rupee hit a low of PKR 278.75 during the week before regaining ground in the final trading sessions.
“The range for this month is PKR 278 to PKR 279, with more volatility expected in swaps,” Tresmark noted. Analysts anticipate that premiums will rise in the coming weeks, though cuts in the Monetary Policy Statement (MPS) might temper expectations. Despite this, the current Rs1-3 premium for one- to three-month swaps may not provide sufficient incentive for exporters.
The State Bank of Pakistan (SBP) is set to announce its monetary policy decision on January 27. Analysts predict a modest 100 basis point (bps) rate cut, which may fall short of market expectations. This comes after the SBP reduced the policy rate by 200bps in December 2024 to 13%, marking a total of 900bps in cuts for the year.
The report also highlighted signs of economic stability. The government has adopted a more optimistic stance, with key officials projecting remittances to hit $35 billion this fiscal year. The rupee is expected to stabilize, inflation is forecast to average 12%, and GDP growth is targeted at 3.6%. These factors hinge on sustained political stability, as the report warns that political turmoil often derails economic progress.
Global factors also weigh on the rupee. The US Dollar Index rose by 0.5% to 109.67, with peaks reflecting strong dollar performance. The index is likely to remain above 105 for most of the year, influencing global currencies, including the rupee.
With external and internal factors at play, the rupee’s trajectory remains uncertain. The balance between economic reforms, political stability, and global dynamics will dictate its course in the months ahead.