In Karachi, the Pakistani rupee is gaining strength steadily, and it is expected that the US dollar will decline to below 280 in the near future. This optimism is driven by several factors, including the anticipation of receiving the next tranche from the International Monetary Fund (IMF), improved balance of payments, and government measures to curb illegal dollar trading, all of which have boosted investor confidence.
In the interbank market, the dollar concluded at Rs286.76. On Friday, the rupee continued its upward trend, reaching 282.69, marking a 1.4% increase.
According to analysts at Tresmark, a financial services platform, it is likely that the rupee will surpass the 280 mark, with only minor resistance expected around 275.
Tresmark explained, “The 275 level is simply a ‘goal-based’ level — some consolidation at that level should be acceptable to all.”
Several factors contribute to the strengthening of the rupee, including the positive signals from the IMF regarding the approval of another tranche, the reduction in smuggling due to the closure of the Afghan border, the expected current account surplus, and a potential boost in remittances.
The government’s actions to combat misuse of the Afghan Transit Trade (ATT) and the declining oil prices are expected to have a positive impact on the balance of payments, further supporting the rupee’s strength.
While the rupee appears to be moving towards a “Stronger for longer” trend, the key risks to consider are political instability and IMF approval, both of which are currently manageable.
Recent trade deficit figures for Pakistan show a positive trend, with a significant reduction in the trade gap. This, along with increased remittances, raises the possibility of achieving a current account surplus, offsetting the previous months’ deficits in July and August.
In August, the current account deficit stood at $160 million, a 79% decrease from the same month the previous year. Over the first two months of FY2024, the deficit decreased by 54% to $935 million, primarily due to reduced imports.
In July, the IMF approved a nine-month, $3 billion bailout package for Pakistan. The country received $1.2 billion from the IMF as the first tranche of the stand-by arrangement in July, with the second review of the loan program scheduled for November.
After experiencing a 6% depreciation against the dollar when the caretaker government took office in August, the rupee has since appreciated by 8%, going from 307 to 282 in just five weeks. This improvement is attributed to government and State Bank of Pakistan actions to curb currency smuggling, hoarding, and speculation, particularly in the open market. Additionally, the open market’s premium over the bank rate has reduced from a peak of 7.4% on September 1 to just 0.1%.