Pakistani Rupee to Remain Under Pressure Against USD Until IMF Review

The rupee is anticipated to face pressure against the dollar until the completion of the International Monetary Fund’s (IMF) initial review of the country’s $3 billion loan program, likely by December 15, The News reported, while citing Tresmark.

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The local currency saw a decline of Rs2 or 0.60% against the dollar this week, closing at Rs287.03 on Friday. The foreign exchange market was closed on Thursday due to a public holiday on the occasion of Iqbal Day.

The IMF initiated its assessment of Pakistan’s bailout package on November 2 and is scheduled to wrap up before mid-December. This evaluation will decide whether Pakistan gets the second tranche of $700 million in December, following the initial $1.2 billion received in July as part of the standby arrangement.

While the rupee might face pressure until the IMF’s review is completed, analysts don’t foresee it surpassing 290 in the interbank market, according to Tresmark. The anticipation is that once the government secures IMF approval, they will bolster the rupee towards the 280 level.

Tresmark highlighted that the rupee is strained due to dwindling export proceeds, and the State Bank of Pakistan (SBP) is purchasing dollars to enhance reserves, aligning with the IMF’s conditions. Forward premiums for one, two, and three-month periods have increased to 315, 500, and 725 paisa, attributed to various factors, including the SBP decreasing its forward book from $4.5 billion in June to $3.5 billion in September, as per the IMF’s requirements.

Despite attractive premiums, exporters are cautious, considering geopolitical risks in the region and waiting for clarity on the IMF’s stance regarding the next tranche, as observed by Tresmark. The IMF has reportedly expressed concern about the rapid devaluation of the currency and inquired about the government’s plans for stabilization, emphasizing the efforts made to reverse the rupee’s trend from 314 to 275.

However, recent remittance figures, coupled with an improving market sentiment and expectations for a better balance of payments, offer hope that the rupee will stabilize in the near future.

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