Rupee expected to remain stable next week

KARACHI: The rupee is expected to stay stable in the coming week as a result of sufficient dollar supplies amid a persistent increase in foreign exchange reserves, currency dealers said.

This week, the local unit in the interbank market witnessed a minor fluctuation. Monday’s closing value was 277.66 per dollar, but on Tuesday it dropped and closed at 277.74. The rupee did, however, close at 277.61 to the dollar on Friday.

“We expect the rupee to trade within existing ranges in the sessions ahead with healthy supplies helping lend support,” a currency dealer said.

Pakistan’s foreign exchange reserves reached a more than two-year high of $16.111 billion as of October 11.

The SBP’s reserves rose by $215 million to $11.02 billion, the highest level since April 2022. The SBP’s reserves are enough to cover more than two months of imports.

However, the reserves of commercial banks dropped by $150 million to $5.089 billion.

The forex reserves, which were gradually improving, received a significant boost after receiving the first tranche of $1.03 billion from the International Monetary Fund (IMF) under the $7 billion Extended Fund Facility last month.

Furthermore, reduction in the current account deficit supported by robust remittances and improved exports also led to a rise in forex reserves.

The markets and analysts expect the State Bank of Pakistan to drop interest rates significantly for the fourth time in a row at its upcoming meeting on November 4, citing a continued decline in inflation. October’s inflation rate is predicted to be 6.5-7 per cent.

“While the market has fully factored in a 200bps rate cut in the upcoming MPC [Monetary Policy Committee] meeting, some traders are overarching expectations for perhaps a jumbo rate cut of 250/300bps. We believe that is unlikely and the MPC will opt for a more conservative approach,” said Tresmark in a client note on Saturday.

A faster rate cut could also impact hot money flows, especially with other emerging markets like Turkey, Egypt and Nigeria giving higher rates, it added.

“Due to a declining interest rates scenario, swaps will remain under pressure and forward booking by exporters will be a trickle. But analysts recommend that if the rupee is expected to remain stable for the next few months, there is no harm in hedging half the exposure,” it added.