As Pakistan gets ready to sign an IMF deal, the rupee will get stronger against the dollar.
KARACHI: The rupee should start to recover against the US dollar because of the government’s efforts to get a bailout programme from the International Monetary Fund (IMF) and because there are more dollars on the market, The News reported Sunday, citing traders and analysts.
The government seems serious about taking some prior actions that could help meet the IMF conditions to seal the state-level agreement with the global lender.
On the interbank market, the local currency gained about 2.18 percent against the U.S. dollar last week. It went from 275.30 to 269.28, which is a change of about 2.18 percent.
During the IMF’s 10-day visit, Islamabad and the fund did not reach a deal to release the $6.5 billion bailout funds. However, both sides agreed to continue long negotiations because the South Asian country’s worsening economic crisis does not seem to have a quick solution.
Pakistan and the IMF need to agree on more money for Pakistan to get more aid, avoid going bankrupt, and rebuild its foreign currency reserves, which have fallen to $2.9 billion.
The stock market went on a selling spree, but there was no reaction to the fact that both sides couldn’t agree at the staff level. It adds at least 10–12 days to the amount of time the IMF has to act, which is a big worry given how quickly reserves are being used up.
Even though there was a setback, the market is still hopeful that the IMF agreement will go through, especially since Pakistan has already taken several harsh “prior actions.”
“The staff-level agreement (SLA) is still not in place because the IMF needs to see some progress on the terms. The SLA might be signed in about a week, and then it would be sent to the IMF board for final approval. Overall, progress that is good,” said a currency dealer.
According to Tresmark’s client note, the double movement of the currency is helping the currency market because exporters are getting their money from exports and giving the market much-needed liquidity.
“For the first time in a long time, exporters sold goods on the market with terms in the near future. The last quote on the grey market was 280/282, and there is also some panic there because speculators want to take their profits and get out of the market,” it said.
There was still a substantial backlog of imports and payments, which would exceed any inflow of export proceeds. But in the middle term, if the IMF deal goes through with follow-up from friendly countries and multilateral organisations, demand could take a huge hit, the report said.
“Because of this, businesses that export will see a boom, while businesses that import will see a bust. In the short term, the market may stay above the 270/$ level, but in the middle term, it may fall back to the 262/$ level.