Weekly currency update: The rupee is projected to stabilise at 240 per dollar.
Because of an uptick in dollar inflows from exporters and remitters, as well as some relief from the country’s political turmoil, traders believe the rupee will hold its current level of 240 against the US dollar in the coming week.
After a two-week losing run against the dollar, the battered rupee rebounded 57 paisas or 0.24 percent to close at 239.37 on Friday, bringing its 2022 loss to 35%. This week, it has lost about 5% of its value.
The State Bank of Pakistan’s foreign exchange reserves have declined by $7.811 billion since February to $8.575 billion in July, enough to cover about six weeks of imports.
“We expect the rupee to stabilise at 240 levels in the coming sessions assuming inflows and outflows coincide.” “The rupee may benefit from remittances and export revenues,” a foreign exchange trader remarked.
The local currency has fallen by around 60 rupees in the last four months. Along with the Turkish Lira and the Sri Lankan rupee, the rupee has emerged as the worst performing currency.
Having control over the currency is critical because otherwise the balance of payments crisis will spread uncontrollably into other parts of the economy, such as the closure of manufacturing units, runaway inflation, and law and order, according to Tresmark in a research note.
“We believe that the worst of the currency movement is behind us this week.” “We also believe that the IMF permission will be granted within the next two weeks (before August 24), but if we do not obtain some verbal comfort within the next week, the government would need to devise a Plan B,” it stated.
The rupee is projected to strengthen. However, in order to determine a target for the rupee, the rapid deterioration of the currency must be dissected. According to Tresmark, if the devaluation was purposeful or one of the IMF’s previous operations, there is extremely little possibility of recovery.
“However, if the weakness is corrected to compensate for the unusual withdrawals in the recent month, the local currency will gradually recover.” If it is the latter, a concerted effort should be undertaken to reduce the value of the dollar, as this will instil confidence in a desperate scenario.”
The State Bank of Pakistan has taken steps to limit imports, which will begin to pay off in the current quarter. According to the report, the expected current account deficit for the July-September quarter is only $235 million.
Pakistan has been in political turmoil since ousted Prime Minister Imran Khan won by-elections in the Punjab province.”There appears to be a window offered by all stakeholders to get the house in order before the inevitable resumption of political manoeuvring,” the report concluded.
