Rupee Seen Holding Steady Against Dollar Next Week

Rupee Seen Holding Steady Against Dollar Next Week

Karachi, June 16, 2024 – Analysts and currency traders anticipate the Pakistani rupee to maintain its current range against the US dollar in the coming week.

This stability is expected despite some end-of-fiscal-year jitters, with dollar inflows from exporters counterbalancing demand from importers.

The rupee experienced a slight depreciation this past week, closing at Rs. 278.50 against the dollar on Friday. However, market players believe the inflow of dollars from exporters converting their earnings will provide support and prevent further decline.

While businesses typically increase dollar demand towards the fiscal year’s end, exporter conversions should bolster supply and keep the rupee stable in the near future.

This optimism stems from the recent budget announcement, which outlined plans for fiscal consolidation through tax increases and projected stronger nominal growth. The finance minister’s subsequent comments expressing confidence in reaching a staff-level agreement with the International Monetary Fund (IMF) by July further bolstered market sentiment.

Following the budget, the market interpreted the finance minister’s statement as an indication of broad IMF approval for the budget’s details.

This positive interpretation led to renewed exporter interest in selling one- and two-month dollar forwards, resulting in a slight drop in forward premiums. Notably, the post-budget trading sessions have seen the spot market solidify despite the budget acknowledging a $20 billion financing gap.

However, recommending against forward selling until the political and IMF situations become clearer.

The newly announced budget is also viewed as a potential positive for Pakistan’s ongoing IMF negotiations for a fresh bailout program, according to a recent Moody’s report. The successful implementation of these reforms will be critical for securing financing from the IMF and other international partners to meet Pakistan’s external financing needs.

“The budget announcement will likely support talks with the IMF for a new extended fund facility (EFF) program,” noted the Moody’s report. “Securing such a program is crucial to unlock financing from the IMF and other partners, allowing Pakistan to meet its external needs.”

While the near-term outlook for the rupee appears stable, Moody’s emphasizes the importance of sustained reform implementation. “The government’s ability to follow through on these reforms will be key to meeting budget targets and securing ongoing external financing, ultimately leading to a more stable economic environment,” concluded the Moody’s report.

In essence, although the rupee is likely to hold steady in the short term, Pakistan’s long-term economic outlook hinges heavily on the government’s ability to deliver on its fiscal reform promises and secure external financing, particularly through a successful IMF deal.