KARACHI: The rupee is expected to strengthen against the dollar in the coming week, as Pakistan reportedly secured $500 million in financial aid from China amid the country’s financial crisis and economic woes, JEE News reported on Sunday. .
Similarly, officials are hopeful that the long-awaited International Monetary Fund (IMF) loan program will be opened to ease its sagging economic base.
Pakistan’s financial markets saw a very turbulent week, with a 300 basis point hike in the policy rate, a depreciation of the rupee and a fall in sovereign bonds. The national currency fell 6.66 percent to a record low of 285.09 against the dollar in the interbank market on Thursday, as the Washington-based lender delayed its bailout.
Yet after the central bank announced a bigger-than-expected interest rate hike to curb rising inflation, the local currency retreated to record lows and ended Friday at 278.46 against the dollar.
Now the central bank’s policy rate is 20 percent.
Finance Minister Ishaq Dar said late on Friday that Pakistan’s central bank had received $500 million from the Industrial and Commercial Bank of China (ICBC), the first of three loans approved for the rollover. .
“The formalities are complete and the Chinese bank, ICBC, has approved the rollover of the $1.3 billion facility that Pakistan has disbursed to ICBC in recent months. The facility will be disbursed in 3 tranches; the first of $500 million; SBP has received. It will increase. Forex reserves,” Dar said on his official Twitter handle.
Formalities completed & Chinese Bank, ICBC approved rollover of US$1.3 billion facility which has been repaid by Pakistan to ICBC in recent months. Facility will be disbursed in 3 instalments, first one of US$500 million has been received by SBP. It will increase forex reserves!
— Ishaq Dar (@MIshaqDar50) March 3, 2023
“The release of China’s loan rollover and the emergence of hopes that the country will quickly reach an agreement with the IMF to issue a bailout means that market sentiment is on the upswing,” said a currency dealer. There will be improvement and the rupee will trade stronger next week.”
Additionally, Tracemark said in a weekly note that “the rupee fell on intervention to weaken the currency, perhaps to meet another IMF condition.”
This time the intervention was done by the central bank by rapidly buying dollars from the interbank market, he said.
“We saw exporters raise a lot in the 280-285/$ range. Strategic payments,” he said.
“Most analysts we have said that the range of 265-275 is where the rupee will settle [assuming an IMF deal]. However, there is a minority view, which we support. , that the range will be closer to 275-280 as SBP’s dollar buying will be more frequent and deliberate keeping the rupee near its lows.
With the IMF [hopefully], the situation will still be challenging, but it will give the leadership more room to open bilateral, multilateral and flood flows.
However, according to Tracemark, what started as an external balance of payments crisis has now spilled over into the financial space.
Pakistan’s interest-to-income ratio, which was the worst in the region (just behind Sri Lanka) will rise to 54 percent from 42 percent. This means interest payments will increase from Rs 4 trillion to Rs 5.4 trillion, adding to other growth and development sectors.
