Rupee to stay steady against US dollar next week: analysts

• "We see rupee stable in the days ahead, despite rising economic uncertainty," says analyst. 
• Markets seeing sharp exodus of foreign currency from equity markets ($80 million in the first 17 days of September). 
• Central bank’s dollar selling interventions helped arrest rupee’s plunge.

KARACHI: Pakistani rupee is expected to stay steady against the greenback during the next week, said analysts as per a report published in The News. 

Analysts said the local unit is expected to trade within the existing range next week amid matching the dollar demand and supply, while the central bank’s monetary stance will also factor in.

The local currency saw highly volatile moves this week, and hit an all-time low of 169.12 on Wednesday. The central bank’s dollar selling interventions helped arrest the rupee’s plunge, allowing the local unit to recover. 

The verbal intervention by the central bank also stopped speculative trades. The rupee closed at 168.19 to the dollar on Friday.

A foreign exchange trader at a commercial bank said, "We see the rupee stable in the days ahead, despite rising economic uncertainty. The match in the demand and supply of the greenback and decline in the real effective exchange rate (REER) could stabilise the rupee.”

Analysts said the 169 per dollar level was not unprecedented, adding that the speed at which it got there in spite of having record reserves left everyone flustered, escalating uncertainty and driving self-doubt. 

A lack of intervention would have let that situation worsen with increased dollarisation, hoarding and scaling back business initiatives, they added.

The $1.5 billion current account deficit in August was amongst the highest recorded in months. Markets are also seeing a sharp exodus of foreign currency from equity markets ($80 million in the first 17 days of September.

“The rupee seems comfortable viz-aviz REER clocking in 97.38 in August this shows rupee is undervalued by about 3-4 rupees,” said an analyst in a report issued from Tresmark.

“While the rupee is likely to stabilise around the 168.50 figure for a few weeks, the Afghanistan-Pakistan situation will take center stage going forward with regards to the rupee's direction, as other indicators (reserves, CAD, remittances) could throw the local currency a couple of rupees here and there, but not be responsible for creating a fresh trend,” he said.

The currency market in Pakistan lacks the depth and volume of a mature market. When avenues of fresh money are few and players are less, the age old quote of 'supply & demand' becomes redundant, as there are no new buyers or sellers when prices get distorted. 

As one senior trader said, "We need a strong anchor from the SBP.” 

In the opinion of some market players, the central bank should also have intervened when the US dollar went below 155 (pre-Covid levels).

About the Afghanistan factor, the report said the burden Pakistan would have to shoulder due to this development was to the tune of $500-700 million per month.