KARACHI: The rupee is expected to remain in range-bound mode in the coming days, and the currency market will set its course with inflows as the country’s foreign reserves have fallen to critical levels, analysts told JEE News.
The local currency depreciated by 49 paisa in the interbank market during the outgoing week. It closed at 224.94 per dollar on Monday, while the rupee closed at 225.43 on Friday.
“The rupee is forecast to trade marginally in the coming week, but investors seem more concerned about the sharp decline in foreign exchange reserves,” an analyst said.
He added that the market will also watch how quickly the government moves to meet the terms of the stalled International Monetary Fund (IMF) program to gauge the rupee’s future path. . The real effective exchange rate (REER) declined to 98.8 in November from 100.2 in the previous month.
Foreign exchange reserves held by the State Bank of Pakistan (SBP) fell by $584 million to $6.1 billion as of December 16, putting enormous pressure on the balance of payments.
SBP’s reserves fell to their lowest level since April 2014. Central bank reserves currently cover only five weeks of imports. The State Bank attributed the decline in reserves to repayment of foreign loans.
Global rating agency S&P Global downgraded Pakistan’s long-term sovereign credit rating by one notch to “CCC+” from “B”, citing external risk.
The IMF’s ninth review has been pending since September.
This has raised concerns about catastrophic floods and revenue shortfalls, particularly fiscal deficits arising from the Petroleum Development Levy. Additionally, there have been problems with the accuracy of flood recovery costs in the budget.
However, analysts expect the IMF’s bailout package to resume in the first quarter of 2023.
Several revenue and fiscal consolidation measures including implementation of General Sales Tax (GST) on petroleum products and abolition of GST exemption, increase in gas rates, rationalization of electricity rates etc.
These steps could help get the program back on track and open the door to issuing the next $1.2 billion tranche in February 2023.
According to media reports, the IMF has made it clear to Pakistani officials that Islamabad must work to meet all requests in the next 15 to 20 days to resume the stalled fund program.
Tight currency controls in Pakistan, which have resulted in a black market for dollars and curbed foreign inflows through legal channels, have prompted the IMF to urge Pakistan to depreciate its currency at its true value. Allow to get.
The future monetary policy is likely to increase interest rates further.
“In our view, raising interest rates is a better option than devaluing the currency, as doing the latter immediately gives wings to inflation (fuel, import inflation, etc.). Also, hikes in the local currency may help provide some strength,” Tresmark said in a weekly note.
A rise in interest rates will also appease the IMF, which by now probably thinks that the government only wants to please its vote bank rather than save the country, and the flood tragedy will also hurt the IMF’s ecosystem. using to destroy.
