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The rupee's dreadful run versus the dollar is expected to slow: experts. KARACHI: The Pakistan rupee is anticipated to fall further in the coming week at a slower rate with no stability until foreign currency inflows increase, according to analysts cited by The News on Sunday.
The local currency performed poorly in the previous week, falling from 230.15 to 262.60 versus the dollar in the interbank market after two days of devaluation.
The rupee's value versus the US dollar fell by Rs32, or 14%.
Meanwhile, in the open market this week, the rupee fell by Rs29 to 269 per dollar.
Since the removal of currency control in accordance with International Monetary Fund (IMF) terms, Pakistan's currency has been dropping in its transition to a market-determined exchange rate.
One of the conditions for continuing a bailout programme sought by Pakistan from the IMF is a market-based currency rate. Due to declining foreign exchange reserves and blocked external financing, Pakistan's finances have been in turmoil.
The cash-strapped country's foreign exchange reserves are only three weeks' worth of import coverage, and it is facing a serious balance of payments problem. Pakistan is eager for foreign investment in order to avoid default.
As of January 20, the central bank's foreign exchange reserves had been drained to $3.7 billion.
"The rupee will weaken somewhat over the next week as a result of a major adjustment (to the currency rate) made during the last two sessions," an expert said.
The critical $1.1 billion tranche, which is part of a $6 billion IMF loan agreed upon in 2019, was supposed to be given in November 2022, but the Fund has yet to sanction its release.
Recent negotiations about renewing the bailout have been put on hold due to the IMF's insistence that the government implement fiscal austerity measures and economic reforms.
The IMF's resident representative stated on Thursday that an IMF delegation will arrive in Pakistan next week to discuss the ninth assessment of the country's stalled funding package.
"While there was no intervention in the forex market on Friday, the rupee/dollar parity failed to get over 264 and then fell slightly to settle at 262.60. "Exporters were interested at these values," Tresmark wrote in a client letter.
"The market will struggle to get over 270 in the short-term, correcting to 265 levels, if there is no negative news on the IMF or the political front. "However, traders will keep a tight eye on decreasing reserves, which fell below $10 billion for the first time in years," the statement noted.
Despite the interest rate rise and devaluation round, Pakistan and the Fund continue to disagree. However, it appears that Pakistan's posture has shifted from resistance to negotiation.
"If everything falls into place, we might have IMF inflows as early as mid-February. "An agreement at the IMF staff level will very certainly open the door for additional substantial inflows from friendly nations and international institutions," it added.
Even though export business was poor, exporters took out additional loans. This implies that exporters borrowed in local currency (at high interest rates) but did not remit their export revenues. This value is estimated to be about $2.5 billion by analysts. According to Tresmark, now that they have a windfall, they may not wait for the rupee to weaken more in order to pay back their high-interest loans and swiftly acquire raw materials before costs rise.
