IMF Review’s Impact
KARACHI: The rupee is poised to face pressure against the dollar until the International Monetary Fund (IMF) completes its first review of Pakistan’s $3 billion loan program, as reported on Sunday, citing a Tresmark report.
This week, the local currency depreciated by Rs2 or 0.60% against the greenback, closing at Rs287.03 on Friday, with the foreign exchange market closed on Thursday for a public holiday.
The IMF’s mission initiated the review of Pakistan’s bailout package on November 2 and is anticipated to conclude by December 15. The outcome will decide whether Pakistan will receive the second tranche of $700 million in December, following the $1.2 billion received in July as the first installment of the standby arrangement.
Tresmark, in a client note, stated, “Although there will be pressure on the rupee till IMF is here, analysts are not expecting it to trade above 290 in the interbank market.”
The financial terminal added, “In our opinion, the government will use the IMF approval, once received, to strengthen the rupee towards the 280 level.”
Tresmark explained that the rupee is under pressure due to dwindling export proceeds, with the State Bank of Pakistan (SBP) buying dollars to boost reserves to meet IMF requirements.
Forward premiums have risen, with one, two, and three-month premiums reaching 315, 500, and 725 paisa. This is attributed to factors such as the SBP reducing its forward book, in line with the IMF’s recommendations.
Despite attractive premiums, exporters remain cautious due to geopolitical risks in the region and await clarity on the IMF’s stance regarding the next tranche.
Tresmark noted that the IMF expressed concern about the rapid devaluation of the currency and inquired about the government’s stabilization plans. The report emphasized the significant effort in reversing the rupee’s trend and urged against letting it depreciate mindlessly.
With improving market sentiment, hopes for a better balance of payments, and recent remittance figures, Tresmark indicated confidence that the rupee would soon stabilize.
