KARACHI: The rupee is likely tostrengthen against the US dollar in the coming week, helped byimproved remittance inflows ahead of Eid and hopes of the International Monetary Fund (IMF) programme's revival, The News reported citingtraders and analysts.
The local unit ended the week at Rs284.40 against the greenback on Friday afterreaching an all-time low of 288.43 on Tuesday in the interbank market.
“We anticipate the rupee's surge to continue. Before Eid, more money is sent home through remittances from Pakistanis working overseas. The rupee will advance as a result,” said a foreign exchange trader.
Financial markets have been swayed by the IMF over the course of many months. The markets rose whenever something nice happened, and fell when something unpleasant happened.
But given Pakistan's claim that the IMF secured assurances of $1 billion in funding support from the United Arab Emirates (UAE), there is a good probability that the staff-level agreement will be inked in the current month. Prior to that, Saudi Arabia had pledged to give funds to Pakistan — which is going through its worst economic crisis ever — $2 billion in deposits.
The optimism is also shared by foreign investors as can be seen in improved credit default swaps and sovereign bond yields. But analysts are still wary, and any celebrations will be delayed till the IMF board approves the loan.
The Washington-based lender praised Pakistan's major bilateral allies for their financial support announcements, but it did not go into detail on the assurances it was looking for.
In the latest statement, the IMF stated that it’s looking for "necessary" funding guarantees as soon as possible to wrap up negotiations with Pakistan on its stalled $6.5 billion bailout.
In the meetings between Pakistan and IMF, there was agreement on the need to maintain strong policies and secure sufficient financing to support the country’s implementation efforts, Nathan Porter, the Fund’s mission chief for Pakistan, said in a statement.
“The IMF is supporting these efforts and looks forward to obtaining the necessary financing assurances as soon as possible,” Porter said.
“Even after the IMF deal, recovery will be slow and painful. Interest rates may plateau but may not recede any time soon. Whereas FX will benefit from improved liquidity,” said Tresmark in a note.
But due to huge pending obligations and transactions (both imported goods, debt servicing and profit repatriation), it was unlikely that the rupee would strengthen and sustain that, it added.
“The potential good of an IMF deal will be improved supply side factors (and hence positive impact on inflation), unlocking of other bilateral and multilateral loans and some improvement in sentiments.”
Analysts are of the view that the rupee may strengthen to 275 against the dollar if the IMF agreement is announced but will slip back into the late 280s after the initial euphoria is over, according to Tresmark.
“Exporters have been inquiring about three months and six months forwards which are trading at tempting levels of Rs6.50 and Rs11, but they are still not selling forwards citing political uncertainty and not being able to open letters of credit as main impediments towards 'business as usual'. So we see the rupee still in the 285-295 range till end of June 23,” it said.