Policy rate, IMF programme to ensure rupee's stability against dollar

• IMF expresses readiness to send delegation for another review.
• Various things indicate clues about currency’s projection: Tresmark.
• Forecasting USDPKR never going to be accurate job, say analysts.

KARACHI: The Pakistani rupee backed by US dollar’s supply and demand is likely to stay steady next week amid optimistic sentiments regarding the national economic prospects following indication by the International Monetary Fund (IMF) about its willingness to join forces with the newly elected government and release the last tranche of its ongoing debt programme, reported The News on Sunday.

The rupee went up by 0.7% in comparison with the dollar in the interbank market this week, ending at 279.04 on Friday compared to its Monday's close of 279.26.

The IMF has recently expressed its readiness to dispatch a delegation for another review of the three billion dollar stand-by arrangements after constitution of the cabinet and ending of the ongoing programme slated to end in April.

Under the present credit arrangement, a final 1.1 billion dollar has still to be disbursed.

Tresmark analysts have said that the exchange rate of rupee and dollar could not be forecasted with certainty but various things indicated some clues about the currency’s projection. “So while there may be great models, forecasting USD-PKR is never going to be an accurate job. After all trust is earned in drops, but lost in buckets.”

As per the Tresmark, the strategy of the state Bank of Pakistan (EBP) to limit imports and outflows preserves balance and cuts dollar’s demand. Due to restrictions on rupee liquidity up until last week, banks were compelled to engage in sell-buy swaps, which increased forward premiums while also creating dollar liquidity.

Despite market predictions of a decrease, the policy rate was kept at its current level to encourage demand for rupees.

“This is why, for the past several weeks, we have maintained our 'range-bound' call on USDPKR. Going forward, we expect status quo on the Rupee, helped by positive news flow from IMF & Moody’s,” the financial data provider said.

“IMF’s statement that it will support formulating a new programme with the incoming government, and also suggested that the 3rd tranche is on schedule. This news boosted the Rupee, the stock market and also sovereign bonds,” it added.

The analysts fear that the PKR’s stability might be at stake as the genuine exchange rate posed enormous risk and was forecasted to close in February at about 104 level. At the same time, they believe that the IMF would not demand devaluing the currency.

Meanwhile, forex reserves in the SBP continued downward trend reaching to 7.896 billion dollar on March 1 after a further reduction of 54 million dollar because of repayments made for foreign loan.

The report said the monetary policy posed another imminent threat as rate cut is likely in the next policy meeting schedule on March 18 that could inflate the rupee value a little more.

“While the above are real threats, they are being neutralised by optimism about the continuation of the existing IMF programme and entering into a new one shortly after that,” the report said.