The Pakistani rupee will likely face continued pressure against the dollar in the upcoming week as the International Monetary Fund (IMF) progresses with its first review of Pakistan’s $3 billion loan program. Completing this review is a critical factor influencing the currency’s stability.
This past week saw the local currency depreciate by Rs2, or 0.60%, ending at Rs287.03 against the dollar on Friday. The IMF’s mission, which began evaluating Pakistan’s bailout package on November 2, is anticipated to wrap up by December 15.
The outcome of this review is crucial as it will decide the disbursement of the second tranche of $700 million to Pakistan in December. Pakistan had previously received $1.2 billion in July as the first instalment.
Market Analysis and Future Projections
Financial analysts, including those from Tresmark, predict that while the rupee will face pressure until the IMF concludes its review, it’s unlikely to exceed 290 in the interbank market. The expectation is that post-IMF approval, the government will aim to strengthen the rupee towards the 280 level.
Tresmark notes that the rupee’s pressure is partly due to reduced export proceeds and the State Bank of Pakistan’s (SBP) efforts to increase its reserves to meet IMF requirements. Forward premiums in the market have seen a rise, influenced by several factors, including the SBP’s reduction of its forward book in line with the IMF’s recommendations.
However, exporters remain cautious due to regional geopolitical risks and await clarity on the IMF’s stance regarding the next tranche. The IMF has expressed concern over the rapid devaluation of the currency and has inquired about the government’s plans to stabilize it.
Despite the challenges, optimism is based on the latest remittance figures and an improving market sentiment. Analysts believe that the rupee is expected to find a more stable footing with further improvements in the balance of payments.
