The Pakistani rupee is anticipated to trade within a tight range in December, buoyed by the prospect of the International Monetary Fund’s (IMF’s) financial instalment.
The potential approval of a $700 million tranche by the IMF Executive Board next month is fostering a sense of optimism in the financial markets.
Despite facing challenges from a backlog of import payments and profit repatriation, the rupee slightly appreciated against the dollar this week, closing at 283.87 in the interbank market. Analysts believe the rupee will continue hovering around 283-284 per dollar in the upcoming sessions.
The State Bank of Pakistan’s foreign exchange holdings saw a decline, mainly due to loan repayments, but the anticipated IMF tranche is expected to bolster reserves.
Monetary Policy and Market Predictions
Pakistan and the IMF agreed on a staff-level arrangement last month concerning a $3 billion bailout, with the disbursement of the next tranche contingent on the Fund’s board meeting on January 11.
There’s a mixed sentiment about the IMF’s stance, oscillating between early assurance of approval and a possible review next month. This uncertainty is intertwined with considerations like timely elections and international cooperation.
The upcoming monetary policy announcement by the central bank on December 12 is a key event. As per a Tresmark poll, market participants expect the policy to remain unchanged, citing persistent high inflation levels that don’t warrant a rate cut. However, about 20% predict a 50 basis points reduction in rates.
The fiscal year’s first five months saw a 10% decrease in remittances from overseas Pakistanis, totalling $11 billion. However, November witnessed a 4% year-on-year increase in remittance flows to $2.2 billion, despite a monthly decline. The rupee’s stability till year-end could face challenges due to the import backlog, potential overvaluation in the real effective exchange rate, and the outcome of the IMF board’s decision.
