Rupee expected to stay steady as traders focus on SBP’s meeting

KARACHI: The rupee is anticipated to remain stable against the dollar in the near term as the market players will be watching Pakistan’s central bank interest rate decision, which is coming this month, traders said.

This week, the local currency fluctuated within narrow ranges in the interbank market. On Monday, the rupee finished at 277.75 to the dollar, and on Friday, it closed at 278.05.

“Since the State Bank of Pakistan has received inflows from the Asian Development Bank (ADB), we anticipate that the rupee will stay stable in the coming weeks due to the positive sentiment surrounding Pakistan’s economy,” a trader said.

“Additionally, before taking new positions on the rupee, market participants will continue to keep an eye on the upcoming monetary policy cue,” he added.

The SBP received $500 million from the ADB on Thursday as proceeds of a loan to support the government’s Climate Change and Disaster Resilience Enhancement Programme.

The ADB inflows will increase the SBP’s forex reserves to around 12 billion. As of November 22, the SBP’s reserves stood at $11.42 billion -- enough to cover more than two months of imports.

Due to declining inflation, most analysts anticipate a 200 basis point (bps) cut in the benchmark interest rate at the SBP’s policy meeting on December 16. Analysts do not anticipate a significantly larger rate cut from the SBP as it has to maintain the fiscal and exchange rate stability while accounting for an inflation comeback in February of next year.

The government expects inflation to remain within the range of 5.8-6.8 per cent in November, further receding to 5.6-6.5 per cent by December.

The inflation rate stood at 7.2 in October, compared with 6.9 per cent in the previous month.

In November, the SBP lowered its key interest rate by 250bps to 15 per cent, marking the fourth straight cut since June.

Tresmark, in a client note said that earlier in the week, exporters were aggressively selling forwards which it expects to slow down if premiums don’t pick up.

“At the moment, most corporates are securing cheap FE loans, as they too expect USD/PKR to remain stable in the foreseeable future,” it said.

“While everyone knows interest rates are on the decline, we expect the central bank to conduct sell-buy swaps to unwind short swaps on its balance sheet,” it added.

“This is one of the IMF conditions. That will keep the premiums propped up for some time. So, traders can keep an eye for swaps to rebound before declining again.”