- Pakistani rupee starts upward trend in interbank market after staying range—bound last week.
- Traders expect the rupee to consolidate around the current levels due to a significant uptake in importers.
KARACHI: Due to higher demand for the hard currency, the Pakistani Rupee is expected to register a range-bound movement against the dollar in the coming week, The News reported on Sunday.
As the dollar inflows stayed robust and the political crisis (Senate elections) seemed to have calmed for the moment, the local currency started its upward trend in the interbank market after staying range-bound last week.
Traders expect the rupee to consolidate around its current levels due to a significant uptake in importers booking forwards, which counters the exporters’ sales.
“We can see a large corporate and importer demand over the next week and the inflows might not be big enough to match that,” a foreign exchange trader said.
In addition, inflows from remittances and the Roshan Digital Account, and a lower-than-expected decline in Pakistan’s Real Effective Exchange Rate (REER) contributed to the rise in the rupee’s value.
The REER decreased 1.05% in January to 95.3177 from 96.3266 recorded in December 2020.
The decline in REER persuaded exporters to the sale of dollars in the market.
The rupee rose to 155.45 on Thursday. However, it didn’t maintain the upward momentum and closed weaker at 155.97 to the dollar on Friday, as traders recalibrated their positions and started buying.
The balance of payments effect
The balance of payments’ numbers haven’t been issued yet but the current account is likely to remain negative in February.
This would make it three months in a row where the current account has reported a deficit.
This may put pressure on the local currency.
However, technical charts show the possibility of the rupee retesting the 155 level, making a temporary high at 154.42 levels in the near-term. This level was last seen during the pre-COVID-19 period.
SBP’s policy rate
The State Bank of Pakistan (SBP) kept the policy rate unchanged at 7% on Friday. The decision was in line with market expectations.
The SBP highlighted in its statement that growth and employment have continued to recover and business sentiment has further improved, for which an accommodative stance of the monetary policy remains appropriate to support the economic recovery.
The central bank in its forward guidance mentioned that it expects monetary policy settings to remain broadly unchanged in the near-term.
The SBP maintained its current account deficit estimate for FY2021 at below 1% of gross domestic product.
However, analysts said despite May and July, a hike in the interest rates may be pushed further towards the year-end, amid a resurgence in coronavirus cases in Pakistan and the world.
As the recovery becomes more durable and the economy returns to full capacity, the MPC expects any adjustments in the policy rate to be measured and gradual to achieve mildly positive real interest rates.