Karachi: The Pakistani currency saw a marginal recovery of 0.02 percent or Rs 0.07 to trade at Rs 285.35 against the US dollar in the interbank market on Tuesday. However, financiers are predicting another round of currency devaluation as the revival of the IMF’s loan program approaches.
The International Monetary Fund (IMF) has once again reminded the government to meet three conditions to restart the $6.5 billion loan program. These conditions include restoring the market-determined exchange rate. Prime Minister Shahbaz Sharif held talks with IMF Managing Director Kristalina Georgieva to revive the stalled bailout package before it expires on June 30, 2023.
The IMF’s reminder of this condition suggests that the government has recently strengthened its control over the exchange rate.
Speaking to JEE News, Tahir Abbas, head of research at Arif Habib Limited, highlighted the difficulty in estimating the rupee-dollar parity in case the government restores the market-fixed exchange rate. However, he cautiously predicted, “We could see another round of 5-10% depreciation of the rupee if we choose to meet the IMF condition.”
A 5-10% depreciation could potentially push the rupee to a fresh record within the 300-310/$ range. On 11 May 2023, the exchange rate hit a new all-time low of 299/$ in the interbank market due to heightened political uncertainty following the arrest of former Prime Minister Imran Khan and subsequent law and order issues. went
In contrast to the stabilization of the exchange rate in the interbank market at around Rs 285/$, the open market has seen a steady downward trend in recent days, indicating that the government has regained control over the rupee in the interbank market. Is.
According to Exchange Companies Association of Pakistan (ECAP), the rupee depreciated by a fresh 0.32 percent or Rs 1 against the US dollar in the open market on Tuesday, touching a new all-time low of Rs 312. went. As a result, the gap between the interbank and open market exchange rates has widened to around Rs.27.
There are indications that the gap could be even bigger, as some currency dealers reportedly bought the local currency as high as Rs 320 to a dollar in the open market, according to market sources.
Fahad Rauf, Head of Research, Ismail Iqbal Securities, said, “The widening of the spread between the two markets is one of the reasons why the IMF reminded Pakistan of its condition to restore a market-based exchange rate.”
Rauf added that if the IMF revives its program before the influx of fresh external loans from friendly countries and donor agencies, the rupee could fall to 305-310/$ in the interbank market.
The two experts noted that while the currency may not depreciate in the interbank market, there may be a partial recovery in the open market if Pakistan receives fresh foreign funding before the program resumes.
Discussions in domestic financial markets suggest that China and Saudi Arabia may provide fresh foreign reserves to Pakistan in the coming days and weeks.
Market watchers will keep a close eye on developments related to the budget for the financial year 2023-24. If the government presents a budget in line with the IMF’s recommendations, it would indicate that both sides have agreed to restart the debt program, which has been stalled since November 2022.
Despite his previous failure to reach an agreement with the IMF since returning to office in September 2022, Finance Minister Ishaq Dar has directed his ministry to share budget documents with the IMF.
Rauf expressed hope that the IMF will sign a staff-level agreement with Pakistan before the program expires on June 30, 2023. The government has already fulfilled several conditions for the programme.
Rauf also noted that the rupee may come under pressure in June due to foreign debt repayments of $3.7 billion, as Pakistan’s foreign exchange reserves are currently extremely low at $4.2 billion.
Additionally, historical trends suggest that traders typically engage in higher imports in June, the last month of the fiscal year. This import pressure may further weaken the rupee in June.
JEE News had earlier reported that the fair value of the Pakistani rupee is Rs 244/$ based on the Real Effective Exchange Rate (REER) matrix.
