The outcomes of the International Monetary Fund’s (IMF) loan review and the upcoming monetary policy decisions show that the rupee is likely to exhibit minimal fluctuations, buoyed by the inflow of dollars from remittances and exports.
During the past week, the rupee oscillated narrowly in the interbank market, ending at 279.19 against the dollar, a slight dip compared to its earlier positions.
Expectations point towards a stable rupee shortly, bolstered by balanced demand and supply dynamics, particularly with the onset of Ramadan and an uptick in export revenues.
Attention is riveted on the imminent verdict on the $3 billion IMF loan and the State Bank of Pakistan’s monetary policy announcement, anticipated in the third week of March. These events are crucial in determining the rupee’s medium-term trajectory.
According to Tresmark, the current swap premiums are noteworthy, yet a softening is anticipated, influenced by the likelihood of a rate reduction.
The forecast suggests the USD/PKR will stabilize within the 279/281 bracket, supported by robust dollar liquidity and projected inflows, highlighted by a surge in forward sales by exporters.
The discourse around Pakistan seeking a new loan from the IMF has been prevalent, underscoring the absence of alternative funding sources.
Amid regional geopolitical tensions, the IMF’s commitment to collaborating with Pakistan’s new government aims at stabilizing the economy, with the expectation that the third tranche of the program will proceed given governmental assurances, ensuring reserve sufficiency for the next quarter. However, negotiations for a subsequent program, potentially ranging from $5 to 8 billion, will focus on fiscal consolidation, subsidy elimination, and restructuring state-owned enterprises, among other reforms, forecasting a prolonged and challenging recovery.
