Inflows may give limping rupee a lift

Erum Zaidi
Thursday, Jun 23, 2022

KARACHI: The rupee weakened further against the dollar on Wednesday, but the progress in IMF bailout talks, a loan facility agreement with China, and a slide in global oil prices are likely to ease pressure on the local unit in the coming days, analysts said.

The rupee ended at 211.93 to the dollar, hitting another record low, as compared to 211.48/dollar on Tuesday.

The rupee should see a correction tomorrow as it was trading at 208-209.50 against the dollar in the TOM (one-day forward) market.

In the open market, the dollar, however, gained 3.50 rupees to close at 212 per dollar. It had closed at 215.50 to USD on Tuesday in the open market.

The outlook for the currency is expected to be bullish in sessions ahead given the bright chances of the revival of the IMF programme, dollar inflows contingent on the IMF into Pakistan, the expected launch of Sukuk by the government, and a fall in the international crude oil prices.

“I think the PKR parity should improve as the IMF deal along with Chinese deposit should improve sentiment in the currency market,” said Samiullah Tariq, the head of research at Pak-Kuwait Investment Company.

Pakistan and the IMF achieved progress in striking a consensus on the budget 2022-23 and the latter will share a draft memorandum of economic and financial policies very soon, maybe next week. The government is expecting the multilateral lender to increase the size and duration of the $6 billion Extended Fund Facility.

The country is also likely to receive inflows from China within a few days after Pakistan signed an RMB 15 billion ($2.3 billion) loan facility agreement with a Chinese consortium of banks, the finance minister Miftah Ismail said on his official Twitter handle.

The expected inflows will help bolster foreign currency reserves and the rupee.

US crude oil prices slumped by 6.25 percent to trade at $102.66 a barrel. Brent fell 6.40 percent to $108.25 per barrel.

The country’s economy has been facing a balance of payments crisis, with foreign exchange reserves plunging fast, declining to $8.99 billion as of June 10.

“The rupee has been weak of late because of uncertainty around the IMF bailout package. With good news and progress on the IMF front, it is likely that the PKR should exhibit strengthening. Going forward, international oil prices will continue to play a key role and any weakness in them should lead to further strengthening of the local currency,” said Saad Hashemy, executive director at BMA Capital Management.

However, the market is concerned about the finance minister's statement saying, both sides have agreed on the budget and fiscal measures but the IMF and SBP will work out modalities on monetary targets, including further tightening of monetary policy, and net international reserves and net domestic assets.