KARACHI: The rupee is expected to remain stable in the near term, as market participants will take limited positions ahead of upcoming negotiations with the International Monetary Fund on the sixth review of the extended $ 6 billion facility, the dealers said.
“We may have some sort of breathing space in the forex market over the next week, as actions taken by the central bank will slow imports and subsequently demand for the greenback,” said a forex trader.
He added that the direction of the local currency will depend on the progress of IMF negotiations next week.
“Most of the players [investors and importers] are unlikely to build long positions during IMF talks.
Staff-level discussions between Pakistan and the IMF are expected to start from Monday, while the finance minister is also expected to attend the annual World Bank and IMF meetings October 11-17 in Washington. The Fund will conduct an Article IV review of the health of the country’s economy. Successful negotiations will pave the way for the $ 1 billion IMF disbursement and also help support the rupee in the months to come.
The rupee remained volatile this week, hitting an all-time low of 170.66 per dollar on the interbank market. Demand for dollars from importers has exploded due to the increase in import payments. The widening current account deficit and soaring international oil prices also continued to put pressure on local unity.
The recent bill proposed by a group of US senators, which seeks to impose sanctions on the Afghan Taliban and the entities that support them, including Pakistan, also affects sentiment on the rupee.
However, the national currency managed to regain some lost ground following a measure taken by the State Bank of Pakistan to stop the decline of the rupee. The SBP imposed a 100 percent cash margin requirement on the import of 114 items, with the aim of reducing imports and reducing the current account deficit.
Analysts said Pakistan has the added burden of dealing with the increasingly complex fallout from the geopolitical situation. The first and most important economic challenge is to navigate the IMF minefield.
“The IMF is not only important as a lender of last resort, but its approval is also important in raising any kind of foreign currency financing. And let’s not forget the FATF conundrum, ”said a Tresmark analyst in a weekly client note.
“Let us also not forget that at the beginning of this year the IMF program was put on hold because the government had more growth-oriented policies in mind and a favorable middle ground could not be found. find.”
Six months later, the government is more desperate for populist measures while the IMF, without any persuasion from the United States, may be thinking of tougher measures.
Pakistan has external financial needs well over $ 22 billion this year, including financing the growing current account deficit as well as foreign loan repayments.