Currency update: Pakistani rupee may strengthen further in coming week

• Dealers expect that the rupee is likely to strengthen further in the following week.
  
• Highest in a year, the Pakistani rupee staged a strong rally touching 156.85 in the intraday trade on Friday.
• Last week, the country’s foreign exchange reserves also rose to $20.133 billion.

KARACHI: Given the inflows from remittances and increased deposits into the Roshan Digital Accounts as well as the dollars earned by exporters, dealers expect that the rupee is likely to strengthen further in the following week, The News reported on Sunday.

The Pakistani rupee registered a strong performance by touching the 156.85 mark in the intraday trade on Friday. However, it closed at 157.12/dollar in the interbank market.

Last year, the local unit had closed at 154.30, but then started to lose value, as the pandemic-related lockdowns started, which weakened the rupee to 169 against the dollar.

Read more: Pakistani rupee likely to strengthen marginally against US dollar next week: report

“We expect a sustained bullish rupee in the face of comparatively weaker demand for the dollar, amid sufficient supplies,” a foreign exchange dealer said.

“If the supply of dollars to the market is sustained, the rupee will extend gains in the near-term. The local unit seems to trade at 156 level against the dollar next week.”

Schedule of debt payments

Tresmark, an application that tracks financial markets, in a client note, said that besides positives, the current account remained in a deficit in February, though at a smaller pace, the fiscal deficit is at historic highs and inflation continues to be insurmountable.

Read more: US dollar sold at Rs157.7 on March 5

Pakistan also has a schedule of debt payments by June, amounting to almost $3 billion. There is still a substantial backlog of import payments, which are, for unknown reasons, not approved to be processed.

The Real Effective Exchange Rate (REER) too is estimated to have crossed the magical 100-mark last month (no official numbers available), an analyst at Tresmark said.

Peer currencies

On a broader outlook, regional and peer currencies, including India, Sri Lanka, Indonesia, Turkey, Brazil, Thailand, and Malaysia have all lost value in the last few days against the dollar, ever since T-bill yields have gone up and the dollar gained against almost all the currencies.

The only exception has been the rupee, which gained. The decline in the dollar value is likely to help reduce the debt burden and fall in imported inflation.

Read more: Pakistan’s petroleum prices lowest in region: report

However, this ongoing rally in the rupee could make exports relatively noncompetitive on pricing. It would have negative implications for the exports.

Analysts said that the rupee may gain further in the next 30 days before consolidating and reversing some of its gains.

Like the world, bond yields have gone up. The six-month and 10-year bonds that were trading at 7.18% and 10% a few weeks ago are now trading at 7.50% and 10.25%, with Karachi Interbank Offered Rate also going up in line with these benchmarks.