KARACHI: The rupee is likely to continue its upward trend against the dollar in the coming week due to a large increase in foreign exchange reserves as the nation received $700 million from China, JEE News reported Sunday citing traders.
During the outgoing week, the local currency gained about Rs 2, or 0.72 percent, to 259.99 against the greenback in the interbank market.
“Following Friday’s $700 million Chinese inflow, which increased the central bank’s foreign exchange reserves to $3.9 billion from $3.25 billion as of February 17, I believe the rupee will continue its upward trend. This will help increase dollar supply and improve market sentiment,” said a forex trader.
“Investors, however, are concerned about delays in resuming the International Monetary Fund’s program. According to Prime Minister Shahbaz Sharif, a staff-level agreement with the IMF to restore the bailout has been reached. I will take ten days.
Since early February, Pakistani officials and the IMF have been discussing policy framework issues. They hope to reach a Staff Level Agreement (SLA) that will open the door to more funding from other bilateral and multilateral lenders.
The lender will release more than $1 billion in 2019 from a $6.5 billion bailout arrangement after the deal is signed.
Pakistan has already taken several steps, such as changing to a market-based exchange rate, increasing fuel and electricity prices, eliminating subsidies, and raising taxes to raise funds to reduce the fiscal deficit. .
The tough measures could cause inflation, which was 27.5 percent in January, to rise and the economy to shrink further. The country’s economy is in recession and needs external funding.
The rupee is strengthening in the interbank market, but it is almost stable in open market deals. The local unit closed at 267.75 per dollar in the curb market on Monday, compared to 268 on Friday. But the fact that the gray market is active again does not bode well for the rupee.
When the government asked importers to arrange dollars on their own and banks slowed down the processing of letters of credit for imports due to the liquidity crisis, importers started buying dollars from the black market.
According to dealers, the local currency fell to 285 against the dollar in the black market. As a result, the differential between interbank, open market, and black market exchange rates has widened significantly.
Dealers worry that when the black market premium for the Pakistani rupee rises, it will not only change market sentiment but also threaten government channels for sending money home to Pakistanis working abroad.
