IMF review and monetary policy are key factors that will determine the rupee’s direction, say traders
KARACHI: With traders waiting for the outcome of the International Monetary Fund’s (IMF) loan review and monetary policy’s decision later this month, the rupee is expected to trade in a narrow range in the coming days, supported by dollar inflows from remittances and exports, y.
In the outgoing week, the local currency saw fluctuations within small bands in the interbank market as it closed at 279.19 on Friday, slightly weaker than 279.11 on Thursday and 279.20 on Monday.
Traders said the rupee was likely to remain stable in the coming weeks as there was no major pressure from the demand side and the supply side was expected to improve due to Ramadan and export proceeds.
The market is closely watching the final review of the $3 billion IMF loan programme, which is now due, and the monetary policy announcement by the State Bank of Pakistan (SBP), which is expected by the third week of March.
Traders said the IMF review and the monetary policy are the key factors that will determine the rupee’s direction in the medium term.
Tresmark, a financial technology firm, said in a note on Saturday that the swap premiums, which reflect the difference between the spot and forward exchange rates, were at a “fantastic” level, but were expected to soften in the coming week due to the increased probability of a rate cut.
“We expect USD/PKR to consolidate but largely remain in the 279/281 range. There is ample dollar liquidity and inflows are expected to pick up. Last week we saw a pickup in forward selling by exporters who were mostly interested in the 1 and 2-month tenors,” it added.
Tresmark said everyone has been talking about Pakistan approaching the IMF for a fresh loan programme for the past few weeks. There will not be any more money coming from elsewhere.
“Another concern is the systematic risk of a big borrower going under, at the time of heightened geopolitical risks in the region, so the IMF’s intent is clear — it wants to work with the new government and potentially turn the economy around,” it added.
