KARACHI: The rupee is expected to be range-bound in the coming week as the currency market appears to be driven by matching demand a
KARACHI: The rupee is expected to be range-bound in the coming week as the currency market appears to be driven by matching demand and supply of dollars, analysts said on Saturday.
The rupee ended at 287.43 to the dollar on Monday in the interbank market, but it dropped and concluded the week at 288.49 on Friday. It fell by 0.36 percent in the last five sessions.
Analysts claim that when the assemblies were dissolved, the market expected the rupee to decline, but nothing significant happened. The rupee did weaken at the end of the week, but this was primarily because of the long weekend, when imports spiked, and partly because the forecast for interest rates had changed.
According to the prime minister’s office, senator Anwar-ul-Haq Kakar has been appointed interim prime minister to oversee national elections. An interim administration will be led by the little-known senator from Balochistan until the next election.
“The forex market has ample liquidity in the interbank market and therefore there’s no extraordinary pressure on the rupee,” analysts at Tresmark said in a note.
“Swaps have maintained their northbound journey fuelled by money management trades, and with exporters still missing in action. Remittances faltered as has been the recent trend, but with current account expected to be in surplus, rupee is expected to stay range bound with the occasional spike above 290/$,” they said.
In the first month of this fiscal year, remittances sent home to Pakistan from its citizens who are employed abroad decreased by 19.3 percent to $2 billion. The central bank’s foreign exchange reserves fell by $110 million to $8.04 billion in the week ending August 4.
Some of the users have asked about the sustainability of premium in the grey market, according to Tresmark.
“Premium arises due to difficulty in buying/selling dollars and when demand outstrips supply. To get rid of this, the market needs to be de-regulated. If there is material dollar demand, no amount of devaluation will erase the premium,” it said.
“A good example is our twin country Egypt, where the premium is a whopping 20 percent, even though the Egyptian pound depreciated by 63 percent in the last 1 year,” it added.
Investors are worried about the rupee’s future under the interim administration, but analysts believe that in order to adhere to the IMF’s guidelines, a market-based approach for determining the rupee/dollar exchange rate will continue, and the difference between the interbank and open-market rates will stay at 1.25 percent.
Investors will anticipate the new government’s urgency to enter into a longer-tenor IMF programme, post-expiration of the current stand-by arrangement in March 2024, in order to continue to ensure Pakistan’s external gross financing needs are met with uninterrupted and timely external inflows. This is after the interim regime (assuming it ends within the typical 3 months as witnessed in the past), according to analysts.
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