Sunday May 28, 2023
The rupee is likely to trade in the interbank market within a range.
The open interbank rate spread widened to Rs.25.
On Friday, the rupee fell to an all-time low of 310 in the open market.
KARACHI: A dollar shortage is likely to keep the rupee under pressure at the open market next week, while the local unit is expected to trade in a limited range in the interbank market as rates appear to be kept in check by administrative measures. News reported on Sunday.
The local currency has fluctuated on the interbank market over the past week, falling to 287.15 per dollar on Tuesday and rising to 285.15 by the end of the week.
As Pakistan's economic position worsens with each passing day and its foreign exchange reserves are depleting, the risks of default are also increasing.
Even as the country desperately tries to restore the halted $6.5 billion International Monetary Fund (IMF) aid, the chances are shrinking by the day, especially since the current program is set to expire on June 30.
“Due to import restrictions, demand for dollars from importers is likely to remain steady. We do not see the rupee breaking beyond the 288 level against the dollar [in the interbank market] in the coming week,” a forex trader said.
"However, due to dollar shortage and increased demand, the rupee appears to be weaker in the open market," the trader added.
On Friday, the rupee fell to an all-time low of 310 against the dollar in the open market. It has depreciated by Rs 5 against the dollar in the outgoing week.
The difference in the exchange rate between the open and interbank markets has widened to around Rs 25, which could encourage overseas Pakistani workers to use illegal means to send money home.
In the week ending May 19, Pakistan's foreign exchange reserves, a key sign of economic health, fell by $206 million to $9.7 billion. State Bank of Pakistan's reserves fell by $119 million to $4.2 billion.
In particular, reserves held by commercial banks fell by US$88 million to US$5.5 billion, reflecting the outflow of wealth.
"While the interbank market still appears to be limited in scope, gray market rates are poised to rise further as most informal imports are settled through this market," Tresmark said in a weekly statement.
“The political turmoil seems to be reaching a crescendo. As seen in other precedents such as Sri Lanka, lowering the political temperature will be important for the economy. Inflation (CPI) is expected to rise to around 39% for May, but will start to moderate from there due to a high benchmark effect and softening global commodities,” the company said.
Finance Minister Ishaq Dar met US Ambassador Donald Bloom for the second time in two months to influence the IMF. Dar reaffirmed Pakistan's default.
Pakistan faces a major debt repayment of $2.3 billion in June.
The country is relying on China's help to overcome the debt, although analysts expect some of the debt will still need to be repaid and will be repaid within days/weeks.
