Chinese inflows to keep rupee steady in coming week

A currency broker stands near his booth, which is decorated with pictures of currency notes, while dealing with customers, on a roadside in Karachi, Pakistan, January 27, 2023.
A currency broker stands near his booth, which is decorated with pictures of currency notes, while dealing with customers, on a roadside in Karachi, Pakistan, January 27, 2023.
  • The rupee remained in a range-bound range during the last week.
  • Traders say that rise in supply due to Eid will support the rupee.
  • Pakistan is planning to repay the loan of $300 million to China on Friday.

KARACHI: Fresh inflows from China will keep the rupee stable in the coming week as sentiments in the market – which are wary of the stalled International Monetary Fund (IMF) program – strengthened following confirmation of refinancing, news Reported on Sunday.

The local unit maintained a range bound trading pattern against the US dollar during the last week at the interbank market. It closed at 287.63 against the dollar on Monday and 287.19 on Friday, with a gain of 0.15% during the week.

A forex trader said: “As Pakistan receives Chinese inflows, the market is likely to react favourably. This is encouraging as Pakistan’s reserves held by the central bank fell below $3 billion after repaying commercial loans to China “

He hypothesized that there would be no significant change in the value of the rupee in the coming week. “An uptick in money supply will provide some support to the rupee as Pakistanis living abroad send more money home to buy sacrificial animals for Eid-ul-Adha,” the trader said.

Pakistan received $1 billion from China on Friday as refinancing of a loan that was already repaid during the previous week. Both transactions do not represent the country’s position in its foreign exchange reserves as of June 9, but they will be reflected in the coming weeks.

Concerns about Pakistan becoming the next emerging market to go into default have led the country to pin its hopes on China to continue easing its balance of payments pressure by extending loans.

Pakistan is planning to repay a $300 million loan to China on Friday and an additional $1 billion loan will be repaid by June 30. Bloomberg State Bank of Pakistan Governor Jameel Ahmed gave this information.

The rupee appears stable, but analysts predict further volatility in the next month.

“Currency traders are now pricing in a weaker rupee in July. A change from Ishaq Dar to a caretaker government (assuming the announcement of elections), would leave the rupee at the mercy of demand and supply, Trezmark said in a note.

Also, the end of June is usually heavy on defense-related import payments. The swap premium has also corrected, impacting the declining level of forex liquidity in the interbank market. It added, “If Ishaq Dar goes, the rupee will quickly fall towards the 300-level and will struggle to find the bottom.”

The factor of demand and supply comes into play assuming that there is some money in the kitty. The SBP’s monetary policy statement said that $3.6 billion is due during June, of which $2.7 billion is attributable to rollover. According to Tremark, this will result in an outflow of $900 million.

The government has also budgeted a $6 billion current account deficit for the next fiscal year, which analysts believe will widen as they expect the trend of declining remittances to continue.

But even looking at government statistics, they show a loss of $300 million to $700 million every month. “With no reliable source of inflows, the market is jittery about dollar liquidity. It will render REER [Real Effective Exchange Rate] or the fair value is worthless till such time as the liquidity crunch is overcome,” the note said.

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