KARACHI: According to dealers, the payments rupee is anticipated to continue under pressure next week as a result of rising dollar demand brought on by the clearance of import and dividend payment backlogs.
The rupee is likely to suffer from concerns that the caretaker administration may last for a long time and that the elections this year may not go as scheduled.
In the interbank market, the rupee decreased this week by 1.46 percent versus the dollar. On Monday, the rupee was worth 291.51 versus the dollar, but by Friday, it had dropped even more, ending the week at 295.78.
According to a foreign exchange broker, “the rupee is expected to continue to weaken in the upcoming days due to the demand for dollars created by the release of delayed import and dividend payments.”
“In accordance with the International Monetary Fund’s guidelines, the import restrictions have been loosened. Because there weren’t adequate foreign exchange reserves, there was a backlog of payments prior to the IMF’s stand-by arrangement, the dealer continued.
The trader claims that supply and demand, rather than central bank meddling, are what drive the market.
According to the State Bank of Pakistan, the “market-determined exchange rate will continue to serve as the first line of defense against external shocks and support reserve build-up.”
However, a deficit of $809 million in July brought an end to Pakistan’s current account balance’s four-month series of surpluses. Imports rose, and that was the main cause. In the week ending August 11, the SBP’s currency reserves increased marginally by $12 million, reaching $8.05 billion.
According to Tresmark, the market is preparing for the rupee to surpass the historic threshold of 300/dollar on Saturday.
According to the business, “This appears to be the market consensus, especially when we look at the above-mentioned factors.”
However, we believe there is a real chance of an ad hoc interest rate increase, which might help the rupee by releasing some of its pressure. Basically, we anticipate that the rupee would trade below 300 in the upcoming week,” it continued.
“Our view is based on the premise that a weak rupee will further exacerbate the inflation problem and also takes into account the increase in swaps, which depicts healthy liquidity levels, and micro-management of imports.”
According to Tresmark, a simple examination of the five most recent interim governments reveals that the local currency has declined on average by around 6% during each of them. Additionally, the currency lost value every time in the first three months that the newly elected government was in power, losing value by an average of around 3%.
While interest rates rose on average by 80 basis points during the interim phase of the administration, they remained relatively steady throughout the first three months of the elected government, according to the business.