Rupee to Remain Steady Pending IMF Approval; Currency Market Awaits Decision
Karachi, July 9, 2023 - The Pakistani rupee is anticipated to maintain stability in the coming week as the currency market eagerly awaits the approval of Pakistan's bailout package by the International Monetary Fund's (IMF) Executive Board on July 12.
According to a report published in The News, currency dealers have expressed optimism that dollar inflows and outflows will remain balanced. In the interbank market, the local unit witnessed a 2.8% or Rs8 rise week-on-week.
Analysts believe that the rupee is unlikely to undergo significant changes in the next week. "The quantity of foreign currency that banks generate through exports and remittances must match the amount of import payments before they can be released," explained an industry expert. This strategy helps to keep the current account deficit in check and prevent uncontrolled imports. The State Bank of Pakistan (SBP) is actively monitoring the current account, indicating a proactive approach to maintaining stability.
Once the inflows from the IMF and friendly nations are received, it is expected that imports may be permitted more freely. However, analysts also note that businesses are currently experiencing minimal import delays as payments are being accepted smoothly.
Currency experts are hopeful that the IMF will approve the standby arrangement during its Executive Board meeting on July 12, resulting in a credit of $1.1 billion to the SBP account by July 18.
Recently, Imran Khan, Chairman of the Pakistan Tehreek-e-Insaf (PTI) and a prominent opposition figure, met with the IMF team at his residence in Zaman Park, Lahore. Khan expressed his support for the bailout deal with the global lender but emphasized the need for guarantees regarding timely elections in the country.
In response, the IMF has stated that it seeks the support of Pakistan's political parties, including Khan's PTI, for the new nine-month $3 billion stand-by arrangement and the associated policies in the lead-up to the country's autumn elections.
Tresmark, a financial portal for treasury markets, commented, "The market does not expect any drastic movement in USD-PKR parity." Their projections from the previous week of 275-280 until IMF approval and 282-287 post-IMF approval still hold, according to the note.
These projections are based on various factors such as significant inflows expected from the IMF agreement, the undervalued status of the rupee on a Real Effective Exchange Rate (REER) basis, elevated interest rates, effective import management, favorable current account deficit leading to increased forex reserves, and the SBP's primary objective of rapidly building reserves.
Pakistan's foreign exchange reserves held by the central bank have increased by $393 million to reach $4.462 billion in the week ending June 30.
During the past week, Pakistani dollar bonds experienced a correction. Following the positive response to the Pakistan-IMF agreement, the country witnessed a substantial upswing in international bond prices, reflecting heightened investor confidence, as reported by JS Global.
However, JS Global notes that there has been a correction in bond prices and yields this week, with bond prices showing an average 7% day-on-day decline based on current prices.
On a cumulative basis, international bond prices have averaged around a 26% increase since the recent low on June 23, 2023, according to JS Global.
As the market eagerly awaits the IMF's decision on the bailout package, all eyes will be on the upcoming Executive Board meeting and its potential impact on the stability of the Pakistani rupee and the country's economic outlook.
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