Rupee’s disastrous ride against dollar will continue at a slow pace: Analysts

The News quoted analysts as reporting on Sunday that the Pakistani rupee is likely to depreciate further in the coming week without any stabilization unless foreign exchange inflows improve.

In the outgoing week, the local currency underperformed as it fell from 230.15 to 262.60 against the dollar in the interbank market after two days of depreciation.

The rupee depreciated by Rs 32 or 14 percent against the greenback.

Meanwhile, the local currency depreciated by Rs 29 to Rs 269 against the dollar in the open market this week.

Pakistan’s currency has been slowing moving from a market-based exchange rate to a pegged exchange rate since currency controls were removed in compliance with the terms of the International Monetary Fund (IMF).

One of the requirements for Pakistan to resume its bailout program from the IMF is a market-based exchange rate. Due to dwindling foreign exchange reserves and stagnation in external financing, Pakistan’s financial system is in a state of disrepair.

The cash-strapped country barely has three weeks’ import coverage in its foreign exchange reserves and is grappling with a severe balance of payments crisis. Pakistan is desperate to get external funding to avoid default.

The central bank’s foreign exchange reserves fell to $3.7 billion as of January 20.

“The rupee is likely to depreciate slightly (at the exchange rate) over the coming week, which it did earlier in the last two sessions,” an analyst said.

The $1.1 billion principal tranche, which is part of a $6 billion IMF loan due in 2019, was initially scheduled to be released in November 2022, but the fund has not yet approved its release.

Recent talks on resuming the bailout have stalled due to IMF demands that the government undertake financial stability measures and economic reforms.

An IMF mission will visit Pakistan next week to discuss the ninth review of the country’s ongoing funding program, which has been put on hold, the world lender’s resident representative announced on Thursday.

“While there was no intervention in the forex market on Friday, the rupee/dollar pair struggled to move above 264, and after staying at that level, closed slightly lower at 262.60. In fact, at these levels, But there was interest from exporters,” Tracemark said in a note to clients.

If there is no negative news on the IMF or political front, the market will struggle to go above 270, correcting the 265 level in the short term. But traders will keep a close eye on the reserves shortfall, which has dipped below $10 billion for the first time in years,” he added.

Despite interest rate hikes and devaluations, differences still exist between Pakistan and the Fund. But Pakistan’s position seems to have changed from resistance to negotiation.

“If things fall into place, we could see IMF arrivals in mid-February. And IMF staff-level agreement will most likely lead to more substantial arrivals from friendly countries and multilateral agencies. It will pave the way.

Exporters have secured more loans despite lower export activity. This suggests that exporters borrowed in local currency (at high rates) but did not bring in their export earnings. Analysts estimate the figure to be around $2.5 billion.

According to Tracemark, now that the hurricane has hit, they can’t wait for the rupee to fall further in the race to get raw materials quickly before prices rise to get back their high-interest money.

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