Rupee on the Road to Recovery Against US Dollar

The Pakistani Rupee is anticipated to begin its resurgence against the US dollar, following the government’s attempts to secure a bailout program from the International Monetary Fund (IMF). Traders and analysts believe that the market’s positive sentiments have been boosted by the government’s efforts to meet the IMF conditions for the state-level agreement.

During the previous week, the local currency appreciated by 2.18% against the greenback, with the rate rising from 275.30 to 269.28. Although no agreement was reached between the government of Pakistan and the IMF during the latter’s recent visit, both parties agreed to continue their negotiations.

The country’s economic crisis appears to have no quick resolution, and it is crucial that Pakistan comes to an agreement with the IMF in order to secure additional aid, avoid default, and restore its foreign currency reserves, which have decreased to $2.9 billion.

The stock market experienced a sell-off, but there was no reaction to the failure of both parties to reach a staff-level agreement. This extends the IMF timeline by at least another 10 to 12 days, which is a significant concern given the depleting reserves.

Despite this setback, the market remains optimistic that the IMF agreement will proceed, especially given the several prior actions already taken by Pakistan. A currency dealer stated that “the IMF must witness some progress on the terms; the staff-level agreement (SLA) is yet not in place.

At least in a week, the SLA might be signed and then sent to the IMF board for final approval. Overall, progress is good.” The currency market is also seeing a positive effect from exporters, who are realizing export proceeds and providing much-needed liquidity in the market.

According to a client note from Tresmark, “for the first time in many months, the market also witnessed material selling in the forward tenors by exporters.” However, there is still a substantial backlog of imports and payments, which could exceed any inflow of export proceeds. In the medium term, if the IMF agreement goes ahead with follow-up from friendly countries and multilateral institutions, demand may take a huge hit.

The client note concludes that “entities involved in the export business will see a boom, while those in the import business will notice a bust. In the short term, the market might stay above the 270/$ level, but is likely to fall back to 262/$ level in the medium term.”