Karachi, March 10, 2024 – As Pakistan gears up for the week commencing March 11, 2024, financial experts predict that the Pakistani Rupee (PKR) is poised to remain stable against the US Dollar, thanks to a resounding affirmation from the International Monetary Fund (IMF) regarding ongoing negotiations for a loan program with Pakistani authorities.
In the preceding week, the rupee demonstrated resilience, gaining 0.7 percent against the greenback in the interbank market. The week concluded with the rupee closing at 279.04 on Friday, a positive shift from the Monday opening figure of 279.26.
The recent assurance from the IMF to dispatch a mission for the second review of the $3 billion stand-by arrangement, contingent upon the formation of a new cabinet, has instilled confidence in the market. Moreover, the IMF’s commitment to ensuring the completion of the current program, set to expire in April, has added further stability to the rupee-dollar exchange rate.
An outstanding payout of $1.1 billion is yet to be released under the existing lending facility, providing a potential boost to Pakistan’s financial landscape. Financial analysts caution, however, that predicting exchange rates is an intricate task, as it involves various unpredictable factors. Despite this, they point to the central bank’s strategic measures, such as curbing imports and outflows, to maintain equilibrium and reduce the demand for dollars.
The recent trend of restricted rupee liquidity has prompted banks to engage in sell-buy swaps, generating dollar liquidity and concurrently bolstering forward premiums. The decision to maintain the policy rate, contrary to market expectations of a cut, is a deliberate move to promote rupee demand and contributes to the overall ‘range-bound’ status of the USDPKR pair.
Looking ahead, experts anticipate a status quo for the Rupee, driven by positive signals from the IMF and Moody’s. The IMF’s statement expressing support for formulating a new program with the incoming government, coupled with assurances about the on-schedule release of the third tranche, has injected optimism into the market. This positive sentiment is reflected in the Rupee’s strengthening, the buoyancy of the stock market, and a favorable response from sovereign bonds.
Despite these positive developments, the report highlights potential threats to the stability of the rupee. The real effective exchange rate is nearing the 104 level, though not an immediate concern, there is a slim chance that the IMF may advocate for rupee devaluation. Additionally, the maturity of $1 billion in Eurobonds next month poses another risk.
The gradual depletion of Pakistan’s forex reserves, down by $54 million to $7.896 billion as of March 1, due to foreign debt repayments, is a cause for concern. Another imminent threat stems from the upcoming monetary policy meeting scheduled for March 18, where analysts speculate on the possibility of a rate cut, which could impact the rupee’s value.
However, these threats are being counteracted by the overall optimism surrounding the continuity of the existing IMF program and the potential formulation of a new one shortly after. Considering the delicate economic landscape, it is expected that no new government would want to tarnish its image by devaluing the local currency in the initial months, further reinforcing the belief that the Rupee is likely to remain range-bound in the foreseeable future.
