Rupee expected to see depreciation of Rs2-3 against dollar from July

• Rupee to see stability in near-term, say experts.
• Local currency closes week at 278.21 this week.
• IMF report on currency implies rupee is overvalued.

KARACHI: The Pakistani rupee is expected to witness depreciation against US dollar in July owing to the surge in imports, The News reported Sunday citing experts.

The local currency, which will see stability in the near-term, witnessed slight fluctuation against the greenback in the outgoing week. It closed at278.21 on Friday as it made minor gains.

Financial terminal Tresmark, citing experts' opinions at the Financial Markets Association (FMA) panel discussion held on Friday, said that therewas a consensus that "if the economy grows, import pressure will rise and exert pressure on the external front".

"The rupee may see a monthly depreciation of Rs2-3 per dollar from July onwards."

Tresmark said almost all experts agreed that the rupee is marginally overvalued. "The currency would be way lower had there been no import and capital restrictions," it added.

The International Monetary Fund’s (IMF) report on currency also implies that the rupee is overvalued.

“There was a whisper that overreliance on a real effective exchange rate may not be a good gauge, as it largely revolves around the base year paradox,” said Tresmark.

Pakistan is amongst the lowest in export-to-GDP ratio, with comparisons drawn to Vietnam, Thailand, India, and Bangladesh and that competitive devaluation should be embraced to let exports grow.

Pakistan’s import-to-GDP ratio is also amongst the lowest, indicating productivity is the issue and perhaps not the currency. "Compared to the peers mentioned, the rupee has deprecated three times more than the currency of those peers, which kind of negates the premise of competitive devaluation," Tresmark said . The rupee/dollar parity went from 105 (2017) to 280 (2024).

Going forward, it appears that a measured and consistent depreciation of the currency will be required, it added.

Market watchers are also keeping an eye on the rupee's position if Pakistan is successful in securing a new bailout from the IMF. It is anticipated that in July, a staff-level agreement with the global lender over the new programme will be reached.

On Friday, the IMF said Pakistan has made significant progress towards reaching a staff-level agreement for an extended fund facility (EFF).

The IMF started talks with Pakistan on a new loan programme after Islamabad last month concluded a short-term $3 billion loan programme that helped prevent a sovereign debt default.

After arriving in Pakistan on May 13, an IMF team led by mission chief Nathan Porter wrapped up talks with the government on Thursday.

“Building on the economic stabilisation achieved through the successful completion of the 2023 Stand-by Arrangement, the IMF and the Pakistani authorities made significant progress toward reaching a Staff Level Agreement (SLA) on a comprehensive economic policy and reform program that can be supported under an Extended Fund Facility (EFF),” it said in a statement.

“The mission and the authorities will continue policy discussions virtually over the coming days aiming to finalise discussions, including the financial support needed to underpin the authorities’ reform efforts from the IMF and Pakistan’s bilateral and multilateral partners.”