KARACHI: The rupee is likely to appreciate against the US dollar in the coming week, depending on the expected infusions from the Asian Development Bank (ADB) and Pakistan’s exit from the Financial Action Task Force (FATF) gray list.
The local currency depreciated by 0.89 percent against the dollar in the interbank market this week. However, in the last trading session on Thursday, the rupee rose to 220.84 on positive news from ADB and FATF. It closed at 218.89 on Monday.
Analysts believe that support from multilateral lenders in the wake of the floods will help boost foreign exchange reserves and strengthen the local currency.
As of October 14, the State Bank of Pakistan had foreign exchange reserves of $7.59 billion, enough to cover nearly one month of imports.
The rupee is expected to trade at 216 against the dollar in the next 10 days and 210 in the next 30 days, according to Terminal Tracemark, a live price tracker for financial markets.
“This is due to inflows of $1.5 billion from ADB in the coming week and $2 billion in the first week of November. Of course, this would not have been possible without the finance minister’s low-value rupee spell,” Tracemark said. said in the client’s note.
But the real test of the rupee will be six months from now.
Analysts believe interest rates in the US are above 5% (last seen in 2008) and the dollar continues to rise.
While major currencies have a consensus bearish bias, markets are predicting Indian rupee at 95 per dollar, Bangladeshi taka at 115 per dollar, and yuan weakening. Dollar strength is a factor, but a global recession is a bigger concern.
“While the CAD (current account deficit) for September was almost at break-even, economists are looking at a 15-20% decline in exports plus a 5% decline in remittances,” it said.
According to him, import pressure and further slowing of the economy will be a continuing requirement to sustain the economic winter.
The rupee weakened marginally during the outgoing week due to the settlement of small credit lines. The market estimates that about 50% (or about $600 million) has yet to be processed.
“The interbank market is also completely out of dollar liquidity, as can be seen at multi-month lows in swap premiums. 1-, 3- and 6-month premiums are -2 (below 130), respectively.” 25 (below 390) and 175 (below 750).
In a positive development, FATAF on Friday removed Pakistan from the list of countries under “higher surveillance” known as the “grey list”. This will help boost the country’s reputation and get a credit rating upgrade from global rating agencies.
Since the International Monetary Fund (IMF) has included the implementation of the FATF Action Plan as a structural criterion, the next review of the IMF’s Extended Fund Facility for Pakistan from the removal will be successful. It will be possible to complete.
However, 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 downgrade comes three months after Fitch downgraded the country’s outlook from “stable” to “negative” and revised the rating to B-. Fitch does not normally assign an outlook to sovereigns rated ‘CCC+’ or below.
