- The rupee is likely to trade in a range against the dollar in the coming week.
- The local unit is losing 0.12% against the dollar this week.
- It is expected to perform in a narrow range with a weaker bias; dealer
KARACHI. The rupee is expected to trade in the range in the coming week, but it may weaken slightly in the coming days due to negative market sentiment. The news reported Sunday, citing a dealer.
The local currency closed the week at $224.65 and ended Friday at $224.94. The rupee has lost 0.12% this week.
“Because the Central Bank applies administrative measures in order to curb imports, demand and supply of US dollars in the interbank market are approximately equal. Banks are urged to pay only import charges that match their export charges,” said a currency dealer.
“But the absence external funding likely to affect investor sentiment. In light of this, we expect the rupee to trade in a narrow range with a weaker bias in the coming week,” he added.
The market heard nothing this week from friendly countries about their financial assistance to Pakistan. Even the $1.2 billion in Chinese commercial banks that were supposed to be refinanced did not materialize.
Progress has been made in the talks, the International Monetary Fund (IMF) said in a half-hearted statement, which was believed to be simply intended to calm markets.
However, a sharp narrowing of the current account deficit provided some support to declining foreign reserves. Pakistan’s current account deficit was reduced by 86% year-on-year, amounting to $276 million in November.
July-November 2023 fiscal year current account deficit fell by more than half to $3.1 billion from $7.2 billion in the same period last year. The State Bank of Pakistan said this was mainly due to reduced imports, while exports remained stable.
The SBP foreign currency reserves decreased to 6.7 billion dollars, which is hardly enough for one month’s imports. According to analysts, the central bank’s administrative measures to squeeze imports may not be sustainable for long.
“SBP is already feeling the heat from correspondent banks to redeem LCs (letters of credit). Many industries are coming to a complete standstill, leading to massive unemployment,” Tresmark said in a weekly note.
At the same time, the IMF is also pushing for devaluation rather than administrative measures to suppress imports. However, judging by past precedents, devaluation has done little to correct the balance of payments situation, as most of our difficulties lie in low exports/productivity and inelastic imports. And an ill-conceived devaluation plan will cause a serious episode of inflation,” he added.
A significant setback in the market was the reduction in remittances. Some analysts blame the growing interbank gap over the gray market.
However, an overall slowdown was often observed when the statistics were compared with other countries with a comparable profile of remitters.
One cannot deny the fact that the gray market is growing like a mushroom and poses a threat. A significant amount of US dollars and goods were seized on the Pakistan-Afghanistan border following a week-long joint operation by the agencies, according to Tresmark.