Traders are optimistic that the rupee would continue its upward trajectory versus the dollar unabated in the coming week due to the anticipated aid inflow from bilateral and multilateral creditors, IMF loan programme concessions, and improving global commodity markets.
After Ishaq Dar returned home and made remarks about the rupee’s undervaluation as well as the possibility that economic policy will stay steady moving ahead after he was named finance minister, the market’s outlook for the currency shifted from bearish to positive.
Traders who had been long [on the dollar] started to sell when Dar said that his major goal was to strengthen the rupee. Similar to this, exporters started selling large amounts of futures.
The rupee was supported by the exporters’ healthy dollar supply and the finance minister’s warning to speculators to stop their activities.
In the interbank market, the local currency rose by 11.2 rupees, or 4.9%, against the dollar this week. This is the second-largest weekly increase since the currency increased by 15.3 rupees on August 5, 2022.
The majority of analysts predict that the rupee will continue to climb in the days to come as a result of numerous events.
The rupee, which on Friday reached a settlement rate of 228 to the dollar, may continue to advance, with the immediate goal being 210 per dollar, according to a report from Tresmark that cited analyst opinions.
A few things have gone in favour of the new finance minister due to the sentimental change in place and the need for more complex administrative actions (also known as “verbal intervention”).
The disaster of the floods has made Pakistan a climate change hotspot, and people’s hearts have softened. According to the article, Pakistan wants to receive $2.6 billion from bilateral and multilateral sources in the immediate term, another $2.5 billion in the medium and long term, as well as other concessions on restructuring and repayment moratoria.
While this does not address the nation’s long-term problems, the liquidity picture has improved. Fortunately, a full-blown recession is now priced in on the international markets as well.
“This has impacted the super commodity cycle we witnessed for some time. [Prices of] oil, metals, and agriculture products have come down 35%, 49%, and 20% since their peak,” it said.
“We anticipate that the current regime may be able to draw some concessions from IMF due to the devastating impact on livelihoods and may be able to convince IMF on interest rate cuts and a new band for Rupee,” it added.
The rupee appreciated, but the foreign reserves kept declining. Due to rising external debt payments, the central bank’s foreign exchange reserves fell by $341 million to $8 billion during the week ending September 23.
In August, the real effective exchange rate (REER) was reported at 94.3, which is now largely out of date. The REER index is currently estimated to be 99.25 as of September-end.
With the IMF, the rupee/dollar parity between 207 and 230 is entirely defendable. Therefore, according to the research, controlling the current account deficit should be given top attention.
“Having said this, some prominent economists think that the rupee was indeed undervalued after seeing a steep decline of 36% [in nine months], and so while there is room for appreciation, whatever the yardstick used by the finance minister, it should be made transparent and after having all stakeholders onboard,” the report said.