Rupee likely to remain steady till June but future looks shaky

• Traders are keeping eye on SBP'smonetary policy decision.
• Rupee makes gains, closes week at278.38 against US dollar.
• Analysts predict rupee may weaken if interest rates are cut.

KARACHI: The rupee is likely to remain stable until June but traders are expecting potential weakening of the currency owing to the State Bank of Pakistan's (SBP) expectedcut in the interest rate before the current fiscal year ends, The News reported Sunday.

The traders are keeping an eye on the central bank'smonetary policy decision toanticipate the local currency's trajectory in the upcoming days.

During the outgoing week, the local unit faceddownside pressure in the interbank market due toweak exports, remittance inflows, and import payments.

The rupee on Mondayfinished at 278.33 against the US dollar, however, it made gains and closed the week at278.38 per dollar.

Analysts predict that the local currency may weaken if interest rates are cut, however, it is expected to stay steady until June.

According to Tresmark, which is a financial terminal, Pakistan'sforeign exchange holdings remain steady despite the country repaying$1 billion in Eurobonds.

This was due to thesubstantial current account surplus, even if it had to borrow some dollars in short-term.

"Reserves will be increased by the final installment of the IMF's stand-by arrangement. The finance minister of the nation anticipates that reserves will approach $10 billion in June. At this time last year, the SBP's portion of reserves was approximately $4 billion," it said.

Tresmark said that theliquidity position is not too bad.

"Though some imports are piling up again, we are hoping exporters to sell dollars in the forward which should ease this equation. We are still buying dollars from the interbank market and will continue to do so to build reserves," it added.

It added that the real effective exchange rate (REER) reached 104, a sharp increase. Even though it's high, it's still not concerning, and as long as the liquidity situation is strong, nothing will go wrong.

All of this indicates superb FX health, but it is necessary to review this in a month because the strength of the dollar may cause other currencies to weaken and other currencies may need to follow suit. At 157/$, the yen has dropped to a 34-year low, added Tresmark.