Rupee will remain in bullish trend as IMF installment approaches.

The local unit was recently appreciated due to the optimism generated by the IMF review, which increased investor confidence in the economy.

A man counts Pakistani rupee notes at a currency exchange shop in Peshawar, Pakistan on September 12, 2023.  - Reuters
A man counts Pakistani rupee notes at a currency exchange shop in Peshawar, Pakistan on September 12, 2023. – Reuters
  • The rupee strengthened 0.36% against the dollar last week.
  • The local currency benefited from dollar sales by exporters.
  • “Market estimates are that the rupee will strengthen to around 282.”

KARACHI: The rupee is expected to rise in the coming week due to dollar selling by exporters and optimism about the country’s economy following the International Monetary Fund (IMF) deal. news on Sunday, citing dealers and analysts.

Over the past week, the local currency gained 0.36% against the dollar, snapping a 17-day losing streak in the interbank market and rising from 287.55 on Monday to 286.50 on Friday.

According to dealers, the local unit has appreciated recently due to the optimism aroused by the IMF review and its positive response, which has boosted investor confidence in the economy.

“We expect the rupee to continue to appreciate as inflows into the market have started to improve. Exporters are returning to the market to sell dollars in anticipation of further appreciation of the rupee in the coming days. Rupee has been supported by better supplies and positive outlook.

IMF staff and Pakistani officials on Wednesday reached a staff-level agreement on the first review under Pakistan’s stand-by arrangement (SBA), which is subject to approval by the global lender’s executive board. If approved, the country is expected to receive approximately $700 million, bringing total disbursements under the SBA to approximately $1.9 billion.

“As soon as the staff-level agreement with the IMF was announced, the top machinery including the caretaker Prime Minister, the interim Finance Minister and the Governor of the State Bank of Pakistan came out with guns blazing and talked all positive to strengthen it. sentiment,” said Tracemark, a financial technology firm, in a weekly client note on Saturday.

“Along with verbal intervention, market tactics were also adopted to bring down the local currency. Reportedly, import payments were postponed, and issuance of new debentures was banned and surveillance in market trading was tightened,” it said.

The reversal in currency trend has again prompted exporters to sell futures, even though the futures premium was reduced by 30% (one and three months at 190 and 430 paise at the end of the week).

“Now the market expects the rupee to strengthen to around 282/$, after which the SBP will resume its dollar buying. The rupee will continue to rise on positive news like loans from multilateral companies and approval by the IMF Executive Board,” Tracemark said.

Positive developments are helping the rupee maintain its upside in the coming days. The government expects the country’s foreign exchange reserves to increase following the country’s impending IMF loan tranche, which will also facilitate faster unlocking of financing from other multilateral partners, which the government has already negotiated.

As of November 10, Pakistan’s foreign exchange reserves stood at $12.5 billion, which was $8.5 billion in May. Remittances and exports are improving. The current account deficit is expected to narrow to $100 million in October.

It is estimated that Pakistan will receive approximately $1.2 billion in financing from the World Bank, Asian Development Bank, and Asian Infrastructure Investment Bank before the end of the year. The government also expects more investment from Saudi Arabia and the United Arab Emirates to support the country’s economy.

Over the past 20 days, global oil prices (Brent) have fallen 17% from $97 to $80 per barrel.

The cut-off yields of Treasury bills and bonds are moving downwards. Inflation is expected to decline significantly from January due to base effect and tight monetary policy and base effect; On a forward-looking basis, interest rates are positive.

“But it is too early to claim success,” Tresmark said, adding that geopolitical risks in the region are substantial, with the US fiscal crisis being a global threat, recessions highly likely in Europe, the UK, China and many more likely to emerge. Is. Markets where sovereign debt is trading at distressed levels, the Ukraine/Russia conflict and China’s epic asset/debt crisis will keep the markets at their peak.

“But the real disappointment is still the slow progress of reforms within the country, including low productivity, low taxes to GDP, fiscal mismanagement, energy reforms, privatization of loss-making SOEs, etc.”

“No amount of verbal intervention and optics management will improve the financial health of the country. With less than 3 months until the next election, we can hear investors saying, welcome to the real world.

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