The rupiah should remain stable

KARACHI: The rupiah is likely to hold firm next week on improving dollar liquidity from exporters, while investors are likely to remain somewhat cautious, seeking more clarity on the policy front and ahead of the next fiscal year budget , the traders said.

The local unit consolidated its gains and climbed to 197.59 against the dollar on Thursday. However, it rebounded the next day after the government raised fuel prices to meet International Monetary Fund (IMF) loan conditions.

Pakistan is seeking a services-level agreement with the IMF in June. Dollar sales by exporters also supported the local unit over the past week. However, the rupee gave up its gains and finished lower at 197.92 to the dollar on Friday, weighed down by a sharp drop in foreign exchange reserves.

“The rupiah appears to be trading on a stable note in the coming week. Markets will be watching the ongoing political unrest in the country closely, such as when ousted Prime Minister Imran Khan announces the date of his next march,” said a currency trader.

“Caution should also prevail ahead of the 2022/23 budget to be presented on June 10 (Fri), with investors expecting IMF conditions (fiscal consolidation) to dominate. However, credibility on how to contain the budget deficit and consolidating public finances will be essential,” he added.

Some traders are seeing renewed pressure on the rupee due to an increase in year-end dollar demand from importers and the corporate sector. Payments related to imports and repatriation of ongoing profits.

The report on China’s $2.7 billion deposit has not calmed the nerves of traders as they see the deposit unnecessary for fiscal or external support.

The country’s foreign exchange reserves fell by $378 million to $15.771 billion in the week ending May 27.

Reserves at the State Bank of Pakistan (SBP) fell to $9.723 billion from $10.088 billion, providing six weeks’ import cover.

Moody’s Investors Service lowered its outlook on Pakistan to stable from negative on concerns including a delay in restarting the IMF lending program.

The government raised fuel prices by 17%, consumer price index inflation hit multi-year highs in May and importing banks struggled to open new letters of credit as the International rating agency downgraded Pakistan’s ratings.

Pakistan’s trade deficit increased by 58% to $43.33 billion in July-May for FY2022. The deficit remained at 12% YoY and 7% MoM in May 4, 04 billion dollars.