Karachi, April 28, 2024 – Financial analysts are projecting a stable outlook for the Pakistani Rupee in the upcoming week, bolstered by anticipated foreign capital inflows which may aid in balancing the recent pressures faced by the currency.
Over the past week, the Rupee experienced some fluctuations in the interbank market, primarily driven by a combination of weak inflows including exports, sluggish remittances, and high import payments. The currency kicked off the week at a rate of 278.33 against the US dollar, saw a slight dip to 278.48 by Thursday, but made a minor recovery to close at 278.38 on Friday.
Market watchers are now turning their attention towards the upcoming monetary policy announcement by the State Bank of Pakistan (SBP). The central bank’s decision is eagerly awaited as it could provide significant clues regarding the future trajectory of the Rupee.
“Considering the current economic indicators, a stable Rupee is expected at least until June,” noted Zaeem Rizvi, a senior financial analyst at a leading brokerage house. “However, there might be some volatility following the monetary policy announcement, especially if the SBP decides to cut interest rates. Such a move could potentially weaken the Rupee slightly against the dollar.”
Despite having to repay $1 billion in Eurobonds, Pakistan’s foreign exchange reserves have shown resilience, supported by a considerable current account surplus. This surplus, however, has necessitated some short-term borrowing, which, while stabilizing reserves in the short run, poses questions about long-term sustainability.
The anticipated final tranche of the International Monetary Fund’s (IMF) stand-by arrangement is expected to bolster the reserves further. According to the nation’s Finance Minister, the foreign reserve levels are projected to reach around $10 billion by June, showing a significant recovery from approximately $4 billion a year ago.
“The liquidity situation in the country remains manageable, and we are optimistic about the inflow of future dollars from exporters,” Rizvi explained. “This should help in easing any immediate pressures on the Rupee.”
Moreover, the State Bank of Pakistan has been proactive in maintaining a healthy level of reserves by consistently purchasing dollars from the interbank market, a strategy that it plans to continue to bolster the currency.
The real effective exchange rate of the Rupee has also shown strength, climbing to 104, indicative of the currency’s better-than-expected performance. As long as the liquidity conditions remain favorable, this is not currently a cause for concern.
Looking ahead, Pakistan’s foreign exchange position appears robust, though it will require reassessment in a month’s time as global currency fluctuations, particularly the strengthening or weakening of the US dollar, could necessitate adjustments in the Rupee’s valuation. Additionally, the currency markets globally are observing other significant movements, such as the recent fall of the Japanese yen to a 34-year low of 157 against the dollar.
As the next week unfolds, the stability of the Rupee will largely hinge on the SBP’s monetary policy decisions and the continued inflow of foreign capital, crucial for maintaining the current balance.
