Rupee recovery stalled due to dollar demand from importers

A man counts dollar bills in Karachi on March 2, 2023.  - inp
A man counts dollar bills in Karachi on March 2, 2023. – inp
  • Pakistan received the first tranche of $1.2 billion from the IMF on 13 July.
  • Inflow of dollars from other external sources strengthened the rupee.
  • Foreign exchange reserves increased to about $9 billion.

KARACHI: The Pakistani rupee saw an improvement in market sentiment during the past week as the country received investments from the IMF and friendly countries, but traders and analysts said the currency market would witness limited trading next week due to increased demand for the importing dollar. is likely to.

Rupee The week appreciated against the dollar as Pakistan received the IMF’s first tranche of $1.2 billion a day after its board approved a nine-month bailout package.

Besides, dollar inflows from other external sources strengthened the rupee against the US dollar, rising to Rs 276.46 against the US dollar on Thursday. On Friday, the currency gave away its gains and fell to a lower closing price of 277.59.

Cash-strapped Pakistan has received $4.2 billion from Saudi Arabia, the United Arab Emirates and the IMF during the past week. As a result of the inflow, foreign exchange reserves held by the State Bank of Pakistan have increased from $4.5 billion in the week ended July 7 to nearly $9 billion currently.

“Market sentiment has improved significantly with the recent infusion of $4.2 billion. However, it appears that Rupee Now there will be trade in a capped manner as the central bank has allowed commercial banks to open fresh letters of credit for import of goods,” said a currency dealer.

The IMF’s program was a one-of-a-kind programme, designed to meet Pakistan’s current needs and facilitated by political help to reach here, Trezmark said in a note on Saturday.

“This shows how the US and Gulf states view Pakistan as geopolitically too important and too big to fail, and how Pakistan’s forces are woven with the latter’s security architecture.”

Pakistan’s sovereign bonds have increased from 38% to 60% since the IMF staff-level agreement. It is important to note that while the 2024 Eurobond trades at 80, the 2031 bond is bid at 48. “These metrics suggest that the current IMF/Gulf bailout is a Band-Aid and Pakistan still faces high default risk in the coming years unless reform initiatives are initiated on a war footing,” it said. noted it.

While Pakistan’s economic growth looks set to outpace the 2.5% projected by the IMF, its inflation outlook for the current fiscal year at 25% is not good news.

According to Tracemark, if inflation remains high, interest rates will not come down anytime soon.

Swap points have moved up in line with sentiment and the 1 and 3 months are trading at Rs 4 and Rs 10 respectively… which translates to an annualized rate of around 15%.

While higher swaps are expected to improve liquidity, a delta of 22% between these and the Karachi Interbank Offered Rate (where the swap should take place) indicates that the dollar is still in high demand.

It added, “While the improvement in reserves estimated at around $6 billion on the backlog of payments (imports, profit repatriation, etc.) is being cheered, this will not allow the rupee to strengthen above its current levels.”

“At the same time, the impact of a weaker rupee on increased interest rates and inflation will continue to support the rupee. With this, we reiterate our earlier view that till a care take up is formed, rupee will remain range bound and remain stable near 282-285 levels.’ According to Tracemark, there is still no significant forward selling by exporters.

Originally published in news

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