KARACHI: Analysts believe the rupee will trade in a range in the coming week as investors seem reluctant to take new positions due to the current political outlook while demand from importers of the dollar is likely to remain high.
The rupee fell 0.93% to 222.47 against the greenback this week, mainly due to PTI’s long march. Analysts predict that the march will become a long battleground.
Additionally, a decline in foreign exchange reserves and a rating downgrade by Fitch weighed on market sentiment. Global rating agency Fitch downgraded Pakistan’s sovereign credit rating to ‘CCC+’ from ‘B-‘, citing further deterioration in the country’s external liquidity and funding conditions and dwindling foreign exchange reserves. The central bank’s foreign exchange reserves fell by $157 million to $7.439 billion in the week ended October 21.
A $1.5 billion Asian Development Bank loan did not help the rupee’s recovery.
According to an analyst, the political developments that have emerged since the PTI began its long march to Islamabad for early elections have further jittered investors.
“There are some concerns that if the march is not peaceful, it will not be a good situation. As a result, market players look on the sidelines,” he said.
However, the rise in the price of Pakistani sovereign bonds on hopes that the country will meet its foreign debt repayment obligations on schedule, boosted sentiment and moderated the sharp depreciation of the rupee. will do
Apart from political uncertainty, the rise in Pakistan’s credit default swaps (CDS) rose to 52.80 percent, the highest level since the 2008 financial crisis, Tracemark said in a weekly client note. Mark said.
Foreign investors have also spooked China’s Xi Jinping from gathering loyalists in his inner circle after winning a third term.
He said that this increases the authoritarian balance of power in the Asia region and portends a wider conflict between the US and China with Pakistan.
“Pakistan’s external financing needs are 8 percent of GDP, which is generally considered achievable. However, these are unprecedented times as the liquidity outlook worsens with every interest rate hike by the Fed.” Goes,” he said.
He noted that the meltdown in emerging markets and the strength of the dollar will likely worsen.
Interestingly, there have been favorable developments in Pakistan’s relations with the US and China and this could be a key factor in averting a full-blown economic crisis. Especially as the International Monetary Fund (IMF) has so far, according to Tracemark, been indifferent to Pakistan’s requests for soft terms.
“The REER (Real Effective Exchange Rate) is estimated to be around 108 as of yesterday. This indicates that the rupee is already overvalued,” he said. The rupee will strengthen near these levels and there will be no major changes in the next week.
They also expect the rupee to start appreciating as World Bank inflows begin to flow in as well.
Tracemark noted that appetite for dollars was still very strong, as importers, who had held back their shipments, tried to stockpile their material in anticipation of future disruptions.
