Rupee may remain range-bound against dollar next week

KARACHI: The rupee is expected to remain range-bound in the coming week as US dollar sales from exporters outweigh demand from importers, traders and analysts said.

The rupee slightly declined versus the dollar this week in the interbank market. The rupee finished at 278.37 against the dollar on Monday. The uncertainty surrounding the budget, however, put pressure on it. On Friday, the local unit closed at 278.50.

“Even though businesses and importers have a dollar demand at the end of the fiscal year, exporter conversions are anticipated to help increase market supply and maintain the rupee’s stability in the upcoming sessions,” a foreign exchange trader said.

The government presented its budget on Wednesday, which outlines a quickening of fiscal consolidation to be achieved through increases in taxes and stronger projected nominal growth.

“Post budget, the finance minister reiterated the government’s expectations of a staff-level agreement with the IMF as early as July. The market interpreted this that the IMF is on board with the major and minor details of the budget,” said Tresmark in a weekly client note on Saturday.

“In post-budget trading sessions, the market saw some renewed interest in selling 1 & 2 month forwards by exporters,” it said.

Forward premiums dropped slightly, while the spot consolidated. Traders continue to keep faith in the rupee in the short term even though the budget reveals a $20 billion financing gap to be filled this year, with a breakup of foreign loan repayments ($18 billion) and short-term credits ($2.5 billion), according to the report.

“The dot plot for USDPKR remains the same as communicated in earlier client notes, however, we do not recommend doing any forward selling for the time being unless the political and the IMF picture clarifies further,” it said.

Pakistan’s newly announced budget is expected to support the country’s ongoing negotiations with the IMF for a fresh bailout, but sustaining reforms will be key to meeting the budget targets and unlock financing from the external partners, according to the latest Moody’s report.

“The announced budget will likely support Pakistan’s ongoing negotiations with the IMF for a new extended fund facility (EFF) programme that will be crucial for the government to unlock financing from IMF and other bilateral and multilateral partners to meet its external financing needs,” it said.

“However, it will be the government’s ability to sustain reform implementation that will be key to allowing Pakistan to meet its budget targets and continually unlock external financing to meet its needs, leading to a durable easing of liquidity risks,” it added.