Rupee to remain stable next week

KARACHI: The rupee is expected to be stable in the coming week, supported by positive sentiment after Pakistan’s parliament passed a tax-heavy budget ahead of crucial talks with the International Monetary Fund for a new loan, dealers said.

In the interbank market during the final week of the fiscal year 2024, the local unit appreciated 28 paisas in relation to the US dollar. The rupee saw some pressure, finishing at 278.62 against the dollar as a result of rising demand for dollars from importers and businesses needing to pay their bills. The rupee did, however, slightly increase as it closed at 278.34 on Friday.

“We anticipate that the rupee will stay at its current level over the next week due to normal dollar demand from importers and optimism, fuelled by expectations that the IMF will reach an agreement with Pakistan for a new bailout in July,” a currency dealer said.

On Friday, the government passed the Finance Bill for the fiscal year 2024-25. The law comes ahead of more negotiations with the IMF for a $6-8 billion loan to prevent Pakistan from defaulting on its debt.

The market’s sentiment was further enhanced by some encouraging economic news. The State Bank of Pakistan allowed the repatriation of dividends totaling approximately $918 million in May 2024. This is due to a comfortable foreign exchange reserves position amid current account surpluses and high remittances. The rupee strengthened by 2.8 per cent against the US dollar in FY24. After three years, the rupee has appreciated versus the US dollar. The rupee depreciated by 28 per cent in the previous fiscal year.

Pakistan secured a $3 billion bailout from the IMF last summer to prevent a sovereign default. The IMF’s standby arrangement ended in April this year. Pakistan was able to obtain timely funding from both bilateral and multilateral partners due to the IMF’s programme.

Additionally, a controlled current account deficit amid subdued domestic demand contributed to reduced imports, as well as exchange rate reforms attracting remittances back to the official banking system.

The central bank’s forex reserves have increased from $4 billion at the end of June 2023 to $8.9 billion as of June 21, 2024.

A decline in the current account deficit, improved foreign inflows, a narrowing of the gap between open and interbank rates, and other administrative measures are the main causes of the rupee’s strengthening in FY24.

The administrative measures taken by the government to prevent dollars being smuggled into Afghanistan from outside Pakistan and stop trading dollars in grey markets and its reforms for exchange companies played a significant role in the rupee’s appreciation in FY24.

Analysts expect the rupee will remain steady in the short- to medium-term, but is likely to depreciate by 5-6 per cent in FY25.