Rupee likely to struggle against US dollar next week, say analysts

• Rupee expected to retreat a bit against US dollar next week. 
• Rupee ends on a record low Rs168.02 Friday in the interbank market. 
• Pakistani rupee should move within 168-168.40 range," says one analyst. 

The Pakistani rupee is expected to retreat a bit against the US dollar next week, say analysts according to a report in The News, due to imminent import payments. 

The rupee ended on a record low Rs168.02 Friday in the interbank market. It hit an all-time low of 168.43 on August 26, 2020. On Monday, the domestic currency closed at 167.23 to the dollar.

“The rupee should move within 168-168.40 range with chances of losing some ground if any big demand for import payments emerges,” one commercial bank trader said.

The rupee may fluctuate a bit as all eyes are on the State Bank of Pakistan (SBP) which will announce a monetary policy on September 20. 

"We think most players will be cautious ahead of the central bank’s monetary policy decision and wait to see what stance State Bank of Pakistan will take on interest rates before taking big positions," said one trader. 

The central bank is likely to let the interest rate remain unchanged at 7% but a weakening currency and the unstable inflationary situation may influence the Monetary Policy Committee to change the interest rate sooner rather than later. 

In ordinary circumstances, the situation for a rate increase would have been reasonable like rising inflation, weakening currency, and a burgeoning fiscal deficit. However, there are many reasons why a hike looks unlikely.

With Covid related economic distress, an accommodative policy is being used by most countries, and the resurgence of the Covid case, both globally as well as domestically means continued support would be crucial to the already meager GDP growth forecasted.

Traders expect the currency to stabilise around the Rs168.50 level, whereas, leaving the currency undefended would pose much bigger headaches for the economic team, it added.

Although the SBP in its previous monetary policy had stated that interest rates could be adjusted higher to counter inflation, analysts are of the view that a rate hike is still far off for at least the remainder of the year.