According to analysts, the rupee is expected to remain within a range of 275 to 285 per US dollar until the next review of Pakistan’s loan program by the International Monetary Fund (IMF). The recent fluctuations in the rupee’s value in the interbank market were described as unusual by experts.
Starting from September 6, the local currency experienced a gradual increase, followed by a sudden decline, and eventually settled at 278 per dollar. While it closed at 276.83 on Monday, it rose to 280.29 on Wednesday, concluding the week at 278.80 against the US dollar.
Interbank closing #ExchangeRate for todayhttps://t.co/gBc4wXdK0o#SBPExchangeRate pic.twitter.com/7at62UZLzX
— SBP (@StateBank_Pak) October 20, 2023
Analysts from the financial services platform Tresmark observed that the foreign exchange market breathed a sigh of relief as it noted the rupee’s “Goldilocks Zone” (ranging from 275 to 285) remained intact.
Also Read: Rupee Crashes 4th Day in a Row against US Dollar
They mentioned that the rupee-dollar exchange rate had rebounded from the 275 level and reached 282, primarily due to public sector-related imports, but also possibly to break the pattern of a daily rupee appreciation.
The rupee concluded the week at 278.80 but is expected to remain within this range until the next installment of IMF funding is finalized, with some expected market volatility coinciding with the upcoming monetary policy announcement on October 30th.
In the recent T-bill auction, yields decreased by 30-45 basis points (bps) on three-, six-, and 12-month papers, and a rate cut could exert some pressure on the rupee.
Analysts noted that if inflation reverses due to a “Stronger for Longer” Rupee policy, the Goldilocks Zone could be tested. However, a successful IMF tranche release in early next month could potentially push the rupee towards the 270 level by mid-November and lead to interest rate cuts of 100-200 bps by year-end.
The IMF is set to review Pakistan’s ongoing $3 billion loan program next month. Traders anticipate a range-bound movement in the currency in the coming week, leading to the possibility of the rupee trading below 280 per dollar due to market stability.
The State Bank of Pakistan’s upcoming monetary policy review meeting on October 30 is widely expected to maintain the benchmark interest rate at 22%, given forecasts of reduced inflation due to declining fuel prices and a stronger local currency.
Additionally, improved balance of payment data reveals a significant reduction in Pakistan’s current account deficit (CAD), which shrank to $947 million in the first quarter of this fiscal year, marking a 58% decrease from the same period last year, primarily attributed to a narrowed trade gap.
