Rupee expected to strengthen on hopes of IMF tranche

• Rupee gained 0.23% in outgoing week against dollar. 
• Market expected IMF board to approve second tranche. 
• Recent rally response to positive economic data, events.

KARACHI: As the International Monetary Fund’s (IMF) next tranche of $700 million under the $3 billion stand-by arrangement inches closer, the rupee is expected to strengthen against the dollar in the coming week, The News reported Sunday citing analysts.

In the outgoing week, the local currency gained ground against the greenback in the interbank market by ending the week at 284.97 on Friday. It gained 0.23% versus the dollar. 

Tresmark, in its weekly note issued on Saturday, said the rupee marginally strengthened, even though the two factors cited for its strength were quite immaterial. 

One reason was the country’s foreign exchange reserves that rose by $91 million and the trade deficit shrank by 33% on a year-on-year basis in November. In the trade deficit area, the lion's share was a reduction in imports and not an increase in exports, which is quite disappointing.

“Continuing the news flow trend, the market is widely expecting the IMF board of directors to approve the second tranche on Thursday. Though the amount is a mere $700 million, it could drive USD-PKR to the 280-282 level, at which level, the central bank will resume dollar buying to bolster its reserves,” said the Tresmark.

According to analysts, the rupee's recent rally is a response to recent positive economic data and events.

The latest data showed that the foreign exchange reserves held by the State Bank of Pakistan (SBP) increased by $77 million to $7.257 billion in the week ending November 24. The country’s total reserves rose by $91 million to $12.393 billion. The reserves of commercial banks are also up by $14 million to $5.136 billion.

Saudi Arabia has recently extended the term of a $3 billion deposit it placed with the SBP for another year. The deposit is set to mature on December 5.

The Saudi deposit renewal will help maintain the cash-strapped country’s foreign reserves and deal with external account issues.

According to a Topline Research survey, 38% of participants who answered a question about the interbank market's exchange rate outlook by 2024 expected the PKR/USD parity to be between Rs290 and 310, 31% expected it to be around Rs270 and 290, and 29% expected it to be between Rs310 and 330. Just 2% of responders think it will be less than Rs270. Nobody anticipates it to surpass 330.

According to Bloomberg, the rupee is expected to finish the year as Asia's worst-performing currency, with losses predicted to last until 2024.

“The currency has fallen about 20% against the dollar this year and analysts say its troubles are far from over. BMI expects the currency will weaken to 350 rupees per dollar by the end of next year, while Karachi-based brokerage Topline Securities Ltd. sees it depreciating to 324 rupees per dollar,” it said.