Rupee likely to remain 'anchored' around 280 against dollar until Feb 8 polls

• Positive economic developments, IMF loan approval support rupee. 
• Local currency faces uncertainty over political outcome: analysts. 
• Exporters selling dollars primary cause of rupee's gain: Tresmark. 

KARACHI: The Pakistani rupee, supported by positive economic developments and International Monetary Fund (IMF) loan approval, is expected to remain stable at around 280 against the dollar until the general elections, slated to take place on February 8, The News reported Sunday citing analysts.  

According to the publication, the currency, however, faces uncertainty over the political outcome. 

The rupee appreciated this week as it traded at 280 against the greenback. During the previous five sessions, the local unit increased by 0.32% against the dollar.

Exporters selling dollars in forward in large volumes were the primary cause of the rupee's gain, according to a note released on Saturday by the financial terminal Tresmark.

Stronger foreign exchange reserves and the IMF's approval for the release of roughly $700 million from a $3 billion bailout for Pakistan advanced the rupee even more.

“From the price action last week, analysts are of the view that the central bank is supporting the 280 level and any time it trades below 280 may only be temporary. Even during the last period of rupee consolidation, USD/PKR stayed below 280 for only 12 days,” it said.

“We expect the rupee to be anchored around the 280 level till before the elections with temporary outruns on both sides,” it added.

Pakistan has somewhat salvaged the cash flow crises, courtesy of IMF’s fresh tranche, but navigating around the election period will prove to be a challenge, the report noted.

There are lots of positives in the first few days of the new year including robust remittances, prospects of current account surplus, and seriousness in privatisation and tax reforms etc, according to the report.

“Markets are calmer with price action in the bond markets reflecting a cut in interest rates, rally in Eurobonds and a stronger rupee. But what happens in the next couple of months is anyone’s guess, some of which can be reflected in Pakistan’s CDS [credit default swap] which though lower is still amongst the most elevated in the world,” it said.

The IMF executive board completed the first review of Pakistan’s economic reform programme supported by its stand-by arrangement (SBA) and approved the loan on Thursday.

This bodes well for the nation's flagging economy in the run-up to next month's elections. According to analysts, the IMF board's decision would instil some confidence in other lenders and markets amid the unpredictability surrounding Pakistan's upcoming elections.

Pakistan will likely get a second $700 million tranche from the global lender either this weekend or early next week. This will increase Pakistan's foreign exchange reserves and increase the country's total IMF disbursement under the SBA to $1.9 billion.