Rupee to recover in coming week on hopes of IMF deal

Our Correspondent
A dealer counts US dollars at a money exchange market in Karachi on January 26, 2023. — AFP
A dealer counts US dollars at a money exchange market in Karachi on January 26, 2023. — AFP

  • Currency market has pinned its hopes on agreement with IMF.
  • No steep decline in dollar expected after deal. 
  • Rupee closes week at 280.77 against dollar.

KARACHI: The Pakistani rupee is expected to recover some ground in the coming week in the hopes of an expected staff-level agreement with the International Monetary Fund (IMF), The News reported Sunday.

The currency market has still pinned its hopes on the agreement with the Washington-based lender even though the greenback closed slightly higher than the previous week.

The market however does not expect any steep decline in the value of the dollar once the agreement is signed and the inflows of over $1.1 billion are disbursed by the IMF.

The local currency closed the week at 280.77 against the dollar, up from 278.46 in the previous week. During the week, dollar-rupee parity fluctuated either way because of inflows of $500 million from China and then the free float of currency after Pakistan agreed to leave it on the market forces.

Currency traders are now eyeing the IMF agreement as once it would be signed it could bring some stability to the market. The IMF team left Pakistan about a month ago, and since then, no agreement has been inked between the government and the Bretton Woods institution.

Instead, the global lender has laid down some more conditions for the government to meet before it releases the $1.1 billion tranche out of the $6.5 billion programme.

To meet some of those conditions, Pakistan had to increase its interest rate and hike additional surcharge on the electricity bills.

Finance Minister Ishaq Dar has also not given any specific date for signing the accord with the IMF and has only expressed the hope that it would materialise soon.

Currency market dealers said that delay in the signing of the agreement was resulting in the loss of confidence in the market, despite a market-based exchange rate. The inordinate delay has not brought much-needed confidence and stability to the financial market, which has been under stress for many months after the IMF programme was suspended.

They believed that the programme would be restored as the country has met almost all the conditions sans the assurances from friendly countries to boost the forex reserves.

Pakistan’s political situation has also been marring the financial market due to uncertainty over the Punjab elections. Political temperatures have risen sharply.

During the outgoing week, the country got some respite in the form of an increase in the foreign exchange reserves after inflows from China pushed the reserves, held by the State Bank of Pakistan (SBP) to over $4 billion. Pakistan’s forex reserves had been on a declining trend during the past several weeks. The country’s reserves are sufficient to cover hardly a month’s imports.

Remittances too showed some gains in the month of February compared to the preceding month of January; however, it recorded a more than 9% decline on a year-on-year basis.