KARACHI – The Pakistani rupee is anticipated to remain stable in the short to medium term following the announcement of a new $7 billion loan deal with the International Monetary Fund (IMF), according to analysts. This deal aims to support the struggling economy and manage its growing debts.
This week, the rupee fluctuated within a narrow range, buoyed by positive news. It ended at 278.5 per dollar in the interbank market on Monday and closed at 278.4 on Friday.
Several factors contribute to this stability:
- Increase in Remittances: Remittances from Pakistani citizens employed abroad rose to $3.2 billion in June, marking a 44% increase from the previous year.
- Foreign Exchange Reserves: The central bank’s foreign exchange reserves have remained steady at $9.4 billion over the past two weeks.
- Stable Rupee-Dollar Parity: The rupee-dollar exchange rate has stabilized just below 280, after peaking at 307.5 in June 2023.
Pakistan has secured a breakthrough by signing a new 37-month Extended Fund Facility (EFF) with the IMF, following the successful conclusion of a $3 billion standby arrangement (SBA) in April. The new deal awaits approval by the IMF Executive Board.
The IMF highlighted the importance of reducing inflation, improving access to financing, and building strong external buffers. It emphasized that monetary policy would focus on supporting disinflation to protect real incomes, especially for the most vulnerable. The State Bank of Pakistan (SBP) will maintain a flexible exchange rate and enhance the functioning and transparency of the foreign exchange market.
Arif Habib Limited noted that the new EFF program is a significant and positive development, securing and supporting the external sector outlook in the long term. The firm anticipates that the Pakistani rupee will remain stable in the short to mid-term due to positive sentiment from the new program.
Tresmark, in its weekly report, mentioned that the rupee is poised for further consolidation following the unexpected early announcement of the IMF staff-level agreement. Expectations of increased foreign investment, multilateral inflows, and higher export proceeds support these predictions. Additionally, equity markets, already near record highs, are expected to receive a further boost.
However, Tresmark noted that the market does not anticipate substantial gains, with the rupee likely to stay around the 278/$ level. Premiums for 3-6 month tenors have risen, and substantial market inflows are expected in the coming week, with exporters finding the 1-3 month tenor range particularly attractive for selling.
