Rupee recovery hinges on IMF review next week

• Rupee fell 1.78, or 0.6% this week, marking second weekly decline.
• On last trading day, rupee lost 48 paisa, with an intraday high of 280.5.
• IMF to review Pakistan’s economic progress after arrival on Nov 2.

KARACHI: The Pakistani rupee is likely to make a recovery of some of its losses against the US dollar next week if the country gets a green light from the International Monetary Fund (IMF) for the next tranche of its loan programme, The News reported citing currency dealers on Sunday.

The local currency marked its second consecutive weekly reduction this week as it fell 1.78 rupees, or 0.6%, to 280.57 per dollar this week.

As the dollar gained strength globally owing to signs of the US' economic recovery, the rupee tapped an intraday low of 280.5 on Friday, which remains the weakest level since early September.

On the last day of trading, the rupee lost 48 paisa, with an intraday high of 280.5 and a low of 280.15 against the greenback.

Analysts said the rupee weakened against the US dollar during the outgoing week as the country awaited the approval of the next tranche of its $3 billion loan from the IMF.

The rupee’s performance is closely linked to the IMF programme, which has been providing Pakistan with financial support under a standby loan approved in July this year to address its balance of payments crisis and implement structural reforms.

The IMF is due to review Pakistan’s progress on its economic targets on November 2 and subsequently release the next tranche of about $700 million.

The rupee’s depreciation was also driven by higher import payments and lower export receipts, as well as geopolitical tensions in the Middle East that dampened the sentiment of foreign investors and exporters, said Tresmark, a currency advisory firm.

“The rupee will likely strengthen again once the IMF tranche is approved, but until then it will be anchored at the 280 level,” Tresmark said in its weekly review. “With the current Middle East conflict, exporters are reluctant to sell forward contracts.”

Although expectations are high that the rupee will strengthen after the IMF approves the next tranche for Pakistan, fears have been expressed about its long-term strength, following Goldman Sachs’ prediction that the rupee’s good performance will be short-lived.

“The performance of the best-performing currency, the rupee, will be short-lived in the backdrop of financing risks and the upcoming elections,” according to a Goldman Sachs analyst.

“The recent appreciation of the Pakistani rupee will likely be short-lived, given soaring interest costs and only short-term arrangements with the IMF and bilateral financing to support the external balance,” analysts led by Kamakshya Trivedi wrote in a report on Wednesday. “The market will continue to require a premium for Pakistan’s rupee ahead of the elections.”