Currency update: Rupee may strengthen further in coming week

• The Pakistani Rupee is expected to strengthen marginally against the greenback.
  
• The change will mainly be due to increased inflows from remittances under RDA and investments coming into bonds.
• Pakistan has received more than $480 million from overseas Pakistanis through Roshan Digital Account in five months.
  

KARACHI: Due to a number of economic factors, the Pakistani rupee is expected to strengthen marginally against the greenback in the coming week, The News reported on Sunday.

The factors which are expected to strengthen the rupee include increased inflows from remittances under the Roshan Digital Account (RDA) and investments coming into the bonds and thin dollar demand from importers.

Pakistan has received more than $480 million from overseas Pakistanis through the Roshan Digital Account in five months. The initiative was launched on September 10, 2020.

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The rupee breached the 159 level, closing higher at 158.82 against the dollar on Friday. It ended at 159.56 on Monday. The rupee appreciated 0.46% during the outgoing week.

'Rupee destined for quick appreciation'

Analysts are monitoring the currency moves to know whether the rupee will continue to increase further in the coming days.

Commenting that a recent appreciation in the currency got traders searching for future direction, Tresmark in a note on Saturday said that it may appear that the rupee is destined for quick appreciation.

However, it cited some analysts who pointed out other balancing factors. The central bank’s foreign exchange reserves declined by $82 million to $12.949 billion on weekly basis.

The current account showed a deficit of $622 million in December 2020, Special Convertible Rupee Accounts have shown a mild outflow of $18 million this month.

Moreover, oil has gained by around 18% year-to-date, and the Real Effective Exchange Rate is expected to converge to 100 for December data (not yet released).

In addition, disbursements under the Temporary Economic Refinance Facility (TERF) may well top Rs600 billion - this would then convert to imports of around $3.75 billion.

Considering the above situations, Tresmaek said: "It would seem that the central bank would be better off mopping up the temporary excess liquidity in the system and build its reserves."

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“This is not without precedent as we saw sharp resistance on November 16, 2020, when the market made a low of 158.07 and reversed direction. Essentially, traders will be expecting the rupee not to breach the 158 level," it added.

Trend expected to continue further

With expectations for the trend to continue further, a foreign exchange trader said: “We are seeing an increased stream of the remittances under RDA, which has caused the market to appreciate. 

"Demand is a bit subdued at the moment due to a break in import payments amid the week-long holiday period in China. We anticipate the rupee to move in the range of 158.30 and 158.70 to the dollar in the coming sessions," he added.

Talking about the remittances, Samiullah Tariq, head of research at Pak-Kuwait Investment Company said: “In my view, inflows are more than outflows, as [the] dollars are coming in the form of remittances, investment coming in bonds due to higher rates and RDA flows."

“I think it [rupee] wouldn’t go below 158,” Tariq added.