Sunday, September 24, 2023
Our Correspondent

Robust export, remittance inflows to strengthen rupee against dollar next week

"We do not anticipate a significant increase in its value relative to the dollar," says trader

Our Correspondent
A currency trader counts Pakistani Rupee notes as he prepares an exchange of U.S dollars in Islamabad. — Reuters/File
A currency trader counts Pakistani Rupee notes as he prepares an exchange of U.S dollars in Islamabad. — Reuters/File

  • This week, rupee's value increased by 1.41% against dollar.
  • Dealers expect rupee to continue to rise, but not significantly.
  • Rupee expected to consolidate in 290-295 range: Tresmark.

KARACHI: Supported by robust export and remittance inflows and positive sentiment on the country’s economic outlook, the rupee is likely to maintain its upward momentum against the US dollar in the coming week, The News reported Sunday.

In the five sessions this week, the local currency increased against the dollar by 1.41%. While it closed at 295.95 per dollar in the interbank market on Monday, it gained strength and finished at 291.76 on Friday. 

A currency dealer said: "Although we anticipate that the rupee's rising trend will continue, we do not anticipate a significant increase in its value relative to the dollar." 

"The campaign against illegal dollar transactions, currency hoarders, and black marketers appeared to be making some progress. The forex market now has more liquidity as a result of exporters selling dollars as well as an increase in daily remittances," the dealer added.

In an effort to promote remittances through legal channels, the State Bank of Pakistan (SBP) announced monetary incentives for banks, and these actions contributed to support the rupee's sentiment. Foreign exchange reserves held by the central bank also slightly increased. In the week ending September 15, the SBP's forex reserves rose by $56 million to $7.7 billion.

Despite the difficulties caused by rising oil costs, there is hope that inflation may moderate in the coming months. The stability of the rupee, improved reserves, crackdowns on smuggling, and a drop in the cost of basic commodities like wheat and sugar are some of the variables that contribute to this optimistic view. 

Concerns over an extended postponement have been allayed by the Election Commission's recent declaration that the elections are slated for the final week of January 2024. Investors have expressed relief over this news, which has caused a spike in positive sentiment.

"The market expects the rupee to consolidate in the 290-295 range with a possible outrun towards the July levels of 286/dollar,” Tresmark said in a weekly client note on Saturday.

It added: "The outside factor in this delicate equation is the political stability/election schedules. This factor was in the limelight when PSX Index, in spite of 'no rate hike’, stronger Rupee & higher forex reserves, remained broadly sideways."

Pakistan is also expecting remittances to clock in at around $2.5 billion primarily due to a crackdown on the grey market and additional incentives to emitters. 

This, along with higher exports in September will keep forex liquidity ample in the market. However, the backlogs of imports are still only partially depleted and the remainder will keep demand high, it said.

Despite the administrative steps showing results in the correction of the rupee, sugar, wheat, and cooking oil, analysts do not expect a significant reduction in the severe inflation Pakistanis are currently experiencing, according to Tresmark.

This is largely a result of rising petrol and energy prices. While most analysts expect consumer price index inflation for September to remain around the 30 percent mark, the weekly sensitive price index has experienced three weeks of consecutive gains, which threatens to change SBP's inflation prognosis.

"While inflation puts pressure on the host country's local currency, Pakistan could stand to gain if it prudently appreciates it currency in what is being called 'reverse currency war' to combat debilitating inflation, in addition to administrative measures and tight monetary stance," it said.

"At the same time, it will need to keep an eye on REER [real effective exchange rate] which has gained 6 percent in the last 6 months (from 85.6 March to 90.12 August), however, as per our most recent workings, it is estimated to end September around the 87 mark."