ISLAMABAD: Analysts predict that the rupee will likely maintain a stable trading range between 275 and 285 per US dollar until the International Monetary Fund (IMF) conducts its next review of Pakistan’s loan program.
According to the analysts they noted an unusual pattern in the movement of the rupee in the interbank market this week. The local currency, since September 6, experienced a consistent uptick, followed by a sudden pullback, and ultimately strengthened to reach 278 per dollar.
On Monday, the rupee concluded at 276.83, but it dipped to 280.29 on Wednesday before finishing the week at 278.80 against the US dollar.
In a note by financial services platform Tresmark, analysts mentioned that the foreign exchange market felt relief as it observed that the Goldilocks Zone for the rupee (275–285) remained intact.
“The rupee-dollar parity rebounded from the 275 level and surged to 282, potentially due to imports associated with the public sector, even though the actual reason might be breaking the monotony of a daily rupee increase,” according to Tresmark.
“The rupee is expected to remain within this range until the next installment of the IMF is finalized, with a possible fluctuation during the upcoming monetary policy announcement on October 30th.”
In the most recent T-bill auction, the cut-off yields decreased by 30-45 basis points (bps) on three-, six-, and 12-month papers, and a rate reduction could exert some pressure on the rupee.
The analysts also noted, “Considering the possibility of inflation reversing due to a ‘Stronger for Longer’ Rupee policy, the stability of the Goldilocks Zone may be tested.”
“If the IMF tranche progresses as planned (by early next month), we may witness the rupee approaching the 270 level by mid-November, possibly accompanied by a reduction in interest rates by 100-200 bps before the year’s end.”
The IMF is set to review Pakistan’s ongoing $3 billion loan program next month. Pakistan secured $1.2 billion from the IMF in July and expects an additional $700 million following the first review and release of the second tranche by December.
Traders anticipate a relatively stable market and a range-bound movement in the currency next week before the central bank’s interest rate decision.
Traders suggest that the rupee may trade below 280 per dollar in the coming week due to market stability.
At its next monetary policy review scheduled for October 30, the State Bank of Pakistan is widely anticipated to maintain its benchmark interest rate at 22% due to projections of reduced inflation, driven by falling fuel prices and the strengthening of the local currency.
Additionally, the most recent balance of payment data indicates a significant improvement, with Pakistan’s current account deficit (CAD) shrinking to $947 million in the first quarter of this fiscal year, marking a 58% decrease from the same period last year. This reduction in the current account deficit is attributed to the narrowing trade gap.
