Sunday Feb 26, 2023
KARACHI: The rupee is likely to maintain its upward trend against the dollar in the coming week owing to a major boost in the foreign exchange reserves as the nation received $700 million from China, The News reported Sunday citing traders.
During the outgoing week, the local currency gained about Rs2 or 0.72%, rising to 259.99 against the greenback in the interbank market.
“After the receipt of $700 million Chinese inflows on Friday, which have improved the central bank's foreign exchange reserves to $3.9 billion from $3.25 billion as of February 17, I believe the rupee will continue its upward trend. This will help to increase dollar supplies and improve market sentiment,” a forex trader said.
“Investors are concerned, though, about the delay in the International Monetary Fund program's resumption. The staff-level agreement with the IMF to revive the bailout, according to Prime Minister Shehbaz Sharif, would take ten days to reach,” he added.
Since early February, Pakistani authorities and the IMF have been in talks about policy framework issues. They hope to reach a staff-level agreement (SLA) that will open the door for further funding from other bilateral and multilateral lenders.
The lender will release a tranche of more than $1 billion from the $6.5 billion bailout arrangement agreed to in 2019 once the deal is signed.
Pakistan has already implemented a number of steps, such as switching to a market-based exchange rate, raising fuel and electricity prices, eliminating subsidies, and increasing taxation to raise money to reduce the fiscal deficit.
The tight measures could cause inflation, which was 27.5% in January, to increase and the economy to further contract. The country's economy has been in disarray and is in need of external funding.
In the interbank market, the rupee has been strengthening, but in open market deals, it is almost steady. The local unit closed at 267.75 per dollar in the kerb market on Monday, compared with 268 on Friday. But the fact that the grey market is once again active is not good for the rupee.
When the government asked importers to arrange dollars on their own and the banks slowed the processing of the letters of credit for the imports due to a liquidity crisis, importers started buying dollars from the black market.
According to dealers, the local currency dropped to 285 against the dollar in the black market. As a result, the gap between the interbank, open market, and black market exchange rates has grown significantly.
Dealers are concerned that when the black market premium for the Pakistani rupee increases, it will not only change market sentiment but also threaten the official channels for sending money home from Pakistani individuals who are working abroad.