Rupee’s future hinges on dollar demand-supply, economic news: analysts

KARACHI: Analysts and traders expect the Pakistani rupee to be range-bound versus the US dollar next week. The projection is based on the balance of dollar supply and demand in the market, as well as forthcoming economic news.

As expected, the rupee rose somewhat over the week due to optimism around Pakistan’s agreement with the International Monetary Fund (IMF) for a fresh $7 billion loan package.

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The rupee closed at 278.11 per dollar on Monday in the interbank market. It closed at 278.12 on Friday. The markets were closed on Tuesday and Wednesday for the 9th and 10th of Muharram (Ashura).

“We expect dollar inflows and outflows to remain balanced, and that positive economic developments will boost investor sentiment,” said a foreign exchange dealer.

“We expect the rupee to remain relatively stable next week,” the dealer said.

Pakistan’s current account deficit decreased to a 13-year low in the previous fiscal year, thanks to a drop in the trade deficit and a rise in remittances.

The country’s current account deficit was $681 million in FY24, the lowest since FY11, representing a 79% drop from the previous year’s $3.3 billion loss.

The central bank’s foreign exchange reserves rose by $19 million to $9.424 billion as of July 12.

According to a Tresmark note citing expert perspectives on how the IMF agreement may effect Pakistan’s economy, the IMF accord is likely to unleash more finance from other international financial institutions and bilateral partners, which is required for Pakistan to satisfy its external obligations.

The arrangement is expected to assist stabilize the Pakistani currency and boost foreign exchange reserves, providing a much-needed buffer against economic shocks, the statement stated. Some reasons cast doubt on Pakistan’s capacity to meet the IMF’s severe terms.

“The political landscape and social challenges in Pakistan add layers of complexity to the successful implementation of the IMF conditions,” according to the statement.

Moody’s notes that Pakistan has traditionally struggled to implement the structural changes required by IMF programmes, casting doubt on the present agreement’s efficacy.

Finance Minister Muhammad Aurangzeb has underlined the government’s continuous efforts to acquire external finance, which would be pursued through a variety of financial sources and the implementation of strong economic reforms.