The rupee will trade in the range next week
KARACHI: The rupee is expected to trade within a range next week, as the measures taken by the central bank are adequate to stop a further decline in the exchange rate, analysts say.
The local currency traded within narrow ranges during the outgoing week. It finished at 168.72 per dollar on the interbank market on Monday. It closed the week closing at 169.03.
“We do not expect the national currency to fluctuate greatly in the coming sessions due to the measures announced by the SBP (State Bank of Pakistan), but it [rupee] will easily break the all-time low closing record of 169.12 / dollar, ”said a forex trader.
“We need to watch whether the local unit will succeed in evolving in tandem with the measures taken to reduce imports and reduce the current account deficit. We are observing how demand calms down. “
The rupee is expected to move in the 169-169-50 range over the next week, he added.
The government and the SBP have issued a number of guidelines for achieving fiscal and external discipline. The SBP said that “the exchange rate is the first line of defense against the current account deficit, then interest rates and other tolls”.
The SBP raised the policy rate by 25 basis points to 7.25%, signaling further rate hikes in the coming months. SBP Governor Dr Reza Baqir said in his recent interview broadcast on CNBC that the Monetary Policy Committee decided now is the time to start declining. This was due to the stronger than expected growth in Pakistani demand and the feeling that the government had succeeded in controlling the delta variant.
However, the markets sensed that this decision was made due to the rising risks of inflation, the falling rupee and the weakening current account balance.
The SBP has asked banks to submit information relating to all of their expected payments (imports) of $ 500,000 and over for the next five days. The central bank has also strengthened the existing data reporting mechanism to further refine its market liquidity projections. This facilitates and supports the smooth functioning of a flexible and market determined exchange rate system.
In addition, the SBP also tightened consumer credit conditions.
The government plans to issue $ 1.5 billion Islamic dollar bonds, increased cash margins for luxury imports, more proactive trade reports, integrated tax and return reports, a verbal intervention on inflation, etc.
The rupee has lost 11% since its peak in May. However, foreign exchange reserves are near all-time highs and the real effective exchange rate (REER) is 95.
Analysts said there should be continued support for the rupee at least until the end of IMF talks.
Most of the steps have already been taken and entry into the IMF will unlock funding and the rupee will begin to stabilize. The rupee is expected to depreciate another 3-5% until June 2022.