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Weekly currency update: The rupee is expected to extend its winning streak due to IMF optimism.

According to dealers, the Pakistani rupee is projected to continue its upward trend because to renewed hope that the International Monetary Fund (IMF) rescue package will be resumed by the end of this month and stronger economic indicators.

In three trading sessions this week, the local currency gained about 3% against the US dollar. On Wednesday, it closed at 221.91 per dollar, and on Friday, it closed at 2015.49. The local unit continued to rise, mirroring increases in the local equities market.

The rupee was supported by an increase in the supply of the greenback as a result of export-related proceeds, a drop in global oil prices, political stability in the country, and lowering US inflationary pressures.

Pakistan’s dollar-denominated sovereign bond prices have also begun to rebound, aided by a reduction in default fears. The five-year currency default swap for the country fell to 17.44% on August 10 from 34.86% on July 20. However, foreign exchange reserves have been steadily depleting. The foreign reserves held by the State Bank of Pakistan fell by $555 million to $7.83 billion as of August 5 on the back of increased external debt payments.

“We expect the rupee to gain further in the coming sessions as sentiment is positive on hopes of receiving IMF funds by the end of August. , “the IMF money will assist stabilise the economy, shore up reserves, and provide support to the rupee.”

The IMF summoned a meeting of its executive board on August 29 to approve a rescue package for Pakistan, including the transfer of around $1.18 billion by the end of the current month.

Following the conclusion of the $4 billion in bilateral finance from four friendly nations, the step would pave the way for an immediate transfer from the IMF, which is expected to be in Pakistan’s account by the end of business on August 31.

According to Finance Minister Miftah Ismail, a letter of intent (LOI) was received early Friday from the lender for the restart of the programme under the staff level agreement (SLA) and memorandum of economic and fiscal policies (MEFP) signed last month.

To forecast the rupee’s future direction, examine the movement of the actual effective exchange rate (REER). This has shown a downward tendency during the last year. REER was 99.56 in July 2021, up from 93.56 in May 2022.

REER is currently around 92.50, according to Tresmark projections.”Given varied inflation paths, REER is estimated to be at 92.50 at the end of August if the rupee is at 220/$.” This level also corresponds to the 220-225 market estimation levels mentioned in the previous weekly. “Intriguingly, SBP resumed processing imports on the open account just as USD-PKR fell below 220,” it stated in a note.

“This, too, should bring about equilibrium in forex in/out flows as old payments in the queue are adjusted.” Short-term jumps to the 205 level, on the other hand, are commonly anticipated by traders and should be factored into trading strategies,” it noted.

The MPC meeting has been scheduled for August 22. This will be a critical meeting to determine whether additional rate hikes are needed or if current levels are acceptable. Cut-off yields on treasury bills stayed basically steady during the most recent auction, and the market forecasts a minimal possibility of further rate hikes, according to the report.

However, it emphasised that holding rates steady while inflation is high and the Fed is quickly raising rates will be difficult.