Rupee heading towards stable close by end of this fiscal year: analysts

• Rupee closes week on 279.59 against dollar. 
• Tresmark says rupee depreciation looks unlikely. 
• June-end closing rates likely to be around 310/$. 

KARACHI: The rupee is poised to hold steady in the coming days against the dollar and is headed towards a stable close by the end of this fiscal year, The News quoted analysts as saying on Sunday. 

During the outgoing week, the local currency made minor gains against the greenback in the interbank foreign exchange market. It closed the week on 279.59.

Meanwhile, the analysts said that a stable currency is the key to curbing imported inflation and boosting business confidence and foreign investment. 

"The component of imported inflation rises when the value of the rupee declines, said Tresmark, a financial terminal in a weekly note. "A policy of steady to stronger local currency has been adopted to prevent this."

It should be clear by now that inflation is the nation's biggest party spoiler. Not only does it not go away, but every other policy aims to normalise it instead. Most economies prioritise inflation over economic growth, which is a global issue.

In 2023, Pakistan saw its highest-ever inflation, and its currency fell to all-time lows until a $3 billion International Monetary Fund (IMF) bailout package saved the country from an imminent sovereign default in July.

The country’s consumer price index inflation increased to 29.7% in December from 29.2% in November.

“The rupee/dollar parity was 286 at the beginning of the fiscal year. A yearly depreciation of 7–10% is typical, based on historical trends, supporting exporters and keeping the real effective exchange rate close to par,” Tresmark said.

“This would imply that June-end closing rates would be around 310/$. As of today, the rupee is actually stronger by around 2%, and depreciation looks unlikely,” it added.

“The new incoming government is unlikely to rock the boat unless inflation cools down significantly. Consequently, the rupee is headed towards a soft close by June 24 end.”

Exporters, which are now fiercely competing with global manufacturers and also domestic conditions like escalating cotton prices, energy, and labour costs are taking the extraordinary risk of selling dollars forward to hedge their sales and give competitive prices.

There also seems to be a concerted effort to keep swap premiums high amidst declining interest rates to support forward selling, Tresmark noted.

The State Bank of Pakistan (SBP) aggregate swap positions have reduced to $3.2 billion from $4.5 billion in June 2023.

The stable currency has prompted higher trading numbers, business confidence, a robust stock exchange, and an inflow of portfolio investment. Month-to-day inflows are around $46 million with about $19 million coming through the purchase of market treasury bills by foreign investors, it added.

In a poll conducted by Tresmark, 83% of participants did not expect any rate change in the upcoming monetary policy review meeting on Monday. The majority think there will not be any rate cut for another two months. While the SBP has projected inflation to come down drastically, revisions in energy and fuel prices will keep inflation at elevated levels.