Weekly currency update: Rupee free fall expected to continue

A forex trader calculates $100 bills. — AFP/File
  • The freefall in the value of the rupee against the dollar is expected to continue into next week, traders say.
  • The local unit closed at 219.86 on Monday but lost further ground to stabilize at 228.18 on Friday.
  • The lack of strong central bank intervention and the lack of a clear strategy to turn around the economy are depressing investors.

KARACHI: Despite IMF of capital inflows, the Pakistani rupee is expected to continue its downward spiral against the dollar in the interbank market next week, as the lack of strong central bank intervention and the absence of a clear strategy to revive the economy depress investors , the traders said.

According to the details, the local unit closed at 219.86 on Monday but lost more ground to settle at 228.18 on Friday.

“Emerging currencies have suffered badly due to the appreciation of the US dollar against major currencies following the Federal Reserve’s relentless rate hikes and increased demand for safe havens, but the sharp drop in the rupee over 4% over the past six trading sessions has fueled investor uncertainty,” said a forex trader.

“The rate of decline of the local currency and superficial interventions are worrying investors,” the trader added.

In July, when the rupee plunged from 210 to 230 in a short time, it was because of the uncertainty related to the resumption of the IMF program and the dollar liquidity crisis.

“It suggests that there is even a strategy in place – because there should be one – a weaker rupee will have crippling effects on inflation, business climate, productivity, fiscal space as well as growth. It appears that beyond engagement with the IMF, there is no concrete economic plan,” Tresmark, a professional web platform for Treasury markets, said in a client note. , The news reported.

The interbank market tracks losses in the open market. The temporary suspension of imports has shifted the problem to smuggling from Afghanistan for cash payments in dollars, which has increased the appetite for dollars on the open market. Other secondary factors are cash exchange requirements for Dubai travellers, declaration of incoming passenger dollars, severe accessibility issues for cashing in parts of all provinces.

The difference between interbank and the open market creates an incentive for foreign currency (FCY) accounts to withdraw US dollars and sell on the open market. While the ultra-low interest on FCY accounts is not helping to attract new deposits, according to Tresmark’s note.

Analysts see multiple opportunities for inflows from friendly countries, bilateral institutions and sovereign states (in the form of flood aid). It is also very likely that the mandate with the IMF will be increased by around 2.5 billion dollars. But the energy crisis in Europe will test and stretch global financial markets.

As a result of price caps in the European Union, budget deficits will be stretched, which will mean more bonds issued at higher rates to attract investors.

“This will in turn put a lot of pressure on all emerging market assets and their currencies will lose even more value. With this in mind, it would be prudent to come up with a financing plan as soon as possible because external financing will quickly become difficult to find,” he said. “Given the above, traders should adjust their positions as they go along, although USD/PKR could most likely see a correction in the coming week from the 222-226 fair value range. /$”, he added.

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