Rupee seen range-bound next week

KARACHI: The rupee is expected to be range-bound in the coming week, depending on the level of demand for dollars from importers and the companies as they make their end-of-year payments.

The rupee was volatile, having swung between 157.51 to a low of 158.53 this week. It closed at 157.62 per dollar on Friday.

“The fiscal year 2020/21 is going to end next week, so we expect the local unit to see an upsurge in demand. However, the dollar inflows will be enough to meet that demand,” said a foreign exchange

trader. “The rupee is likely to trade within the range of 157.40 to 158 in the week ahead.”

The Financial Action Task Force (FATF) was widely expected to maintain Pakistan in the grey list.

“The FATF’s decision to not remove Pakistan from the grey list is unlikely to affect the sentiment on the rupee,” another trader said. However, he pointed out that the surge in the monthly current account deficit could be a source of concern for the market.

The current account deficit widened 236 percent month-on-month to $632 million in May.

FATF in its press conference said that money laundering risks still remain high in Pakistan and a new action plan would be discussed with the government officials with respect to money laundering.

Domestic currency was under pressure due to import and debt payments during the outgoing week.

This is also evident from the fact that the central bank’s foreign exchange reserves fell $311 million to end at $16.106 billion in the week that ended June 18.

However, the rupee stabilised during the last two sessions after the supplies increased on the back of inflows from remittances and dollar selling from exporters.

The market, which was nervous on rumours of delay in the completion of the sixth review of the International Monetary Fund’s loan programme, calmed down as the traders’ attention turned to a statement from the IMF’s spokesperson released on Thursday.

The Fund said it was holding constructive discussions with Pakistan on the sixth review of its financial package, but more work was needed on structural reforms.

The Fund however, did not say anything about the pause and the continuation of the loan disbursement during the interim period.

Analysts see a consolidation of around 155-156 in the rupee when the winds of year-end actions have settled.

The Real Effective Exchange Rate is expected to spike in May by touching the 105 level but may most likely stabilise or recede on the back of falling inflation in subsequent months.