• Pakistani rupee closed at 176.06 against US dollar in interbank market last week.
  • Investors still expect to remain cautious until IMF’s $6 billion loan programme becomes available.
  • Mini-budget and SBP’s autonomy contributed to more optimistic outlook for Pakistan’s economy among traders.

KARACHI: Traders say that the Pakistani rupee is expected to be stable because of improved dollar liquidity from export proceeds this week, but that investors are still expected to remain cautious until the International Monetary Fund’s (IMF) $6 billion loan programme becomes available, as per the The News.

The rupee closed at 176.06, gaining 62 paisas or 0.35%, against the US dollar in the interbank market last week, supported by weak dollar demands for import payments and exporters’ forward selling of greenbacks.

Furthermore, the currency market celebrated the National Assembly’s approval of the so-called mini-budget, which would end sales tax exemptions under the fiscal tightening measures, and the legislation’s passage to give more autonomy to the State Bank of Pakistan (SBP). This action contributed to a more optimistic outlook for Pakistan’s economy among traders.

Approval of these two bills from Parliament is the key condition set by IMF for the clearance of the sixth review of Pakistan’s Extended Fund Facility (EFF) by its executive board.

“Though, the rupee has room to consolidate its gains versus the dollar due to decent inflows from exporters and remittances, and insignificant importer demand, we expect the local unit to trade cautiously as traders and investors await further clarity on IMF front,” said a currency dealer.

The market is also unsure if the IMF executive board approves the sixth review and allows disbursement of $1 billion tranche, accepting two bills passed in their present shape, or imposes more conditions, according to the dealer.

“The rupee is likely to hold at 176 level at least in the coming week,” he added.

Remittances from Pakistani citizens working abroad maintained an upward momentum and hit the highest level for the six months in July-December FY2022. Remittances rose 11.3 percent to $15.8 billion in the first half of this fiscal year.

According to an SBP report published on Saturday, Real Effective Exchange Rate (REER) clocked in at 98.54 as of November (rupee’s November closing was 175.20), compared with 96.39 in the previous month.

REER increased by 2.2 percent month-on-month, while it fell 1.2 percent so far this fiscal year. It dropped 4.3 percent from its recent peak of 103 in April 2021.

“According to this [REER] data, the rupee is still undervalued, but with December inflation numbers (both for Pakistan and trading partners) near record highs, this would be a key metric to watch out for,” Tresmark analysts said in a client note.

“But generally speaking, with high premiums and rupee having just undergone a depreciating spree, booking forwards on a part portfolio is a good trade to minimise risk for exporters,” it added.

Depleting foreign exchange reserves and rising foreign debt obligations have become a source of worry for policymakers and investors as well.

Analysts estimate the government will pay back $8.63 billion to international creditors in the second half of FY2022. The country could face a balance of payments crisis if the IMF programme is not resumed by the end of this month or early February.

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