Karachi: Traders and analysts said the rupee is expected to strengthen against the dollar next week on influx of exporters and hopes of International Monetary Fund (IMF) loan approvals.
The local unit ended 32 paise lower at 176.24 against the dollar in the interbank market this week. On Monday (January 17), it ended at 175.92.
“We are a bit bullish on the rupee next week as we expect the local currency to appreciate due to dollar sales from exporters, lower import payments and possible approval of a $6 billion IMF Extended Fund Facility (EFF),” said a foreigner. " exchange trader.
Analysts said the market is gearing up for the coming week, with two major events taking place; On Monday, the central bank's monetary policy and the IMF's executive board are scheduled to meet on January 28 to consider Pakistan's request to complete the sixth review and release the $1 billion tranche under the EFF.
There is no change in monetary policy this time in the financial markets and the State Bank of Pakistan (SBP) is expected to keep the policy rate unchanged at 9.75 per cent. Traders are watching how SBP's Monetary Policy Committee treats rising inflation and external account pressures when making interest rate decisions next week.
“If approved [from the IMF], there will be a flurry of activities in the markets, including fresh bond issuance, multilateral engagement, more fiscal space promoting growth, faster privatization, relief from FATF [Financial Action Task Force] , etc. are included. ,” Tresmark said in a report on Saturday.
It is expected that the government will soon issue one dollar sukuk in the international markets. Moody's Investor Service assigned a B3-backed senior unsecured rating to the government-proposed issuance of sukuk in US dollars.
Last week, markets saw the government rebasing its gross domestic product (GDP), turning macros with GDP growth above 5 per cent. Some rumors about the emergency also put investors on edge, the report said.
The country's foreign exchange reserves declined 2.3 per cent to $23.349 billion on January 14 on repayment of debt. “Amidst all this, we see that the Ministry of Finance is trying to raise $8 billion to meet the current account deficit gap (CAD is estimated to be just over $15 billion in FY2022). It's definitely doable, but it's not over until the fat lady sings," the report said.
High interest rates have failed to generate warm money inflows, but there has been a welcome inflow of foreign money into equities. The REER (Actual Effective Exchange Rate) for December, 2021 was recorded at 96.74, which is lower from 98.56 recorded in November, 2021.
This was not surprising as the REER is based on inflation differential and while inflation in Pakistan was very high, it was equally high in other major economies, which strengthened the rupee.
“We also see a significant increase in dollar selling momentum in the coming weeks.”
According to the report, it appears to be a good trade as leading analysts do not see the rupee exceeding 180/$ at the June close and the position of the rupee still marginally lower.