Rupee’s path largely depends on IMF’s sixth review, say dealers

Photo — Reuters/File
Photo — Reuters/File
  • ECAP expects rupee will hold current level in coming week with a slight decline in dollar value.
  • Rupee’s path will largely depend on response country gets from IMF board on sixth review, says dealer.
  • Rupee remained stable against US dollar during outgoing week and closed at Rs178.13 against the closing level of Rs178.04 in last week.

KARACHI: Currency dealers are linking the rupee’s path with the sixth review of the $6 billion Extended Fund Facility (EFF) for Pakistan that will be taken up by the executive board of the International Monetary Fund (IMF) on January 12.

“The rupee’s path will largely depend on how positive the response the country gets from the IMF board on the sixth review is,” said a dealer.

According to a report published in The News, the rupee will probably cut some of its losses against the US dollar in the next week ahead of IMF’s sixth review on the loan programme, but it’s likely to stay weak on ballooning trade and current account deficits, dealers said.

A sharp rise in imports fuelled by global commodity prices and stronger domestic demand widened the trade deficit and resulted in the weakening of the local currency.

The rupee remained stable against the US dollar during the outgoing week and closed at Rs178.13 against the closing level of Rs178.04 in the last week.

The government is confident that it will fulfill the two main conditions; approval of the State Bank of Pakistan Amendment Bill, 2021 and the Supplementary Finance Bill set by the Fund to win its loan tranche before the date set to present the review. Traders will continue to monitor the evolving situation on the IMF programme front for clues on the rupee in the near term. Pakistan will secure a $1 billion tranche of the IMF funding once its board approves it, following implementation of the prior actions.

“The dollar-rupee parity is likely to remain at the current levels with slight fluctuation till the next review of Pakistan-IMF deal is done,” said Malik Bostan, chairman of Exchange Companies Association of Pakistan (ECAP).

Zafar Paracha, general secretary ECAP expects the rupee will hold the current level in the coming week with a slight decline in dollar value after SBP’s regulations subdued the dollar demand in the open market.

“Buying restrictions imposed by the SBP (State bank of Pakistan) for the greenback in one day has already reduced dollar demand in the open market,” Paracha said.

“A Rs2 gap between the dollar and rupee in the interbank and open market is likely to be bridged in the coming week after demand rapidly vanished in the open market.”

Paracha said the external account is likely to improve owing to the sharp fall in global crude oil prices.

Pakistan imports more than 80% of its oil requirements and high global prices percolate through the economy and hurt consumers, while also widening the country’s current account deficit.

Brent crude futures settled 71 cents lower at $76.14 a barrel on Friday amid surging infection cases through the Omicron variant.

The Organisation of the Petroleum Exporting Countries and allies including Russia, known as OPEC+, will meet on 4 January to decide whether to go ahead with a 400,000 barrels per day (bpd) production increase in February.

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