The rupee is expected to start its recovery drive against the US dollar as the government’s efforts to secure the International Monetary Fund’s (IMF) bailout programme have boosted the market’s positive sentiments due to an increase in dollar supply.
The government is likely committed to taking certain initial steps that could help in meeting the IMF requirements to complete the state-level agreement with the global lender.
The local currency increased by around 2.18% against the dollar in the interbank market during the previous week, rising from 275.30 on Monday to 269.28 on Friday.
Islamabad and the IMF did not reach an agreement to release the funds from a $6.5 billion bailout during the fund’s 10-day visit, but both sides agreed to continue protracted negotiations because the South Asian country’s deepening economic crisis does not appear to have a quick fix.
In order to get financial assistance, prevent default, and restore its foreign currency reserves, which have fallen to $2.9 billion, Pakistan must reach an agreement with the IMF for additional funding.
Although the stock market was on a selling spree, neither party responded to the other’s inability to obtain a staff-level agreement. Given the rate at which reserves are emptying, it extends the IMF timetable by at least another 10–12 days and raises major concerns.
Despite a setback, the market is still optimistic that the IMF agreement would go forward, especially in light of Pakistan’s several punitive “prior steps.”
“As the IMF needs to see some progress on the terms, the staff-level agreement (SLA) is still not in place. In about a week, the SLA might be signed and then sent to the IMF board for final approval. Overall, progress is good,” said a currency dealer.
According to a client note from Tresmark, the exporters are having a positive impact on the currency market as a result of the currency’s dual movement. They are realizing export proceeds and supplying the market with much-needed liquidity.
“For the first time in many months, the market also witnessed material selling in the forward tenors by exporters. In the grey market, the last quote was 280/282 and there is some panic there as well as speculators wanting to book their profits and exit the market,” it said.
In contrary to any inflow of export revenues, there was still a sizable backlog of imports and payments. However, it cautioned that in the near run, given that the IMF deal would be implemented with support from friendly countries and multilateral institutions, demand might suffer significantly.
“With that, entities involved in the export business will see a boom where as those in the import business will witness a bust. In the short term the market may stay above the 270/$ level, but may fall back to 262/$ level in the medium term,” the client note stated.
