- The rupee closed at 305.47/$ on Friday; Declined 1.15% in five sessions.
- The coin fell 4.2% on the dock market, where it trades freely.
- The rupee is likely to face difficulties next week, and the decline appears to have moderated.
KARACHI: As the sharp decline in the value of the rupee eases after hitting record levels last week, the Pakistani currency is expected to trade in a narrow range against the dollar next week. News quoted traders and analysts on Sunday.
The rupee closed on Friday at 305.47 to the dollar, after losing 1.15% in the past five sessions, while the closing price of the interbank labor market for the local currency last Monday reached 302 to the dollar, losing more ground on Thursday as it fell to 305.54.
However, after eight consecutive sessions of record lows, it managed to hold steady on Friday.
The currency also fell by 4.2% on the dock market, where it trades freely, during the week. It fell from $315 to the dollar on Monday to $328 on Friday, according to the Pakistan Exchange Companies Association.
Although the rupee is expected to face difficulties in the coming week, the decline in the currency appears to have moderated.
“The rupee will come under pressure, but I think any weakness will be gradual. I don’t expect a sharp decline like what happened eight to 10 sessions ago,” said a foreign exchange dealer at a major bank.
The trader added that demand for the dollar is high due to capital withdrawal, political turmoil and economic uncertainty.
Another trader said the rupee decline was also driven by the shift of remittances to hawala, an informal money transfer system, fueling demand for dollars among smugglers and informal/low-billed traders.
“The sudden depreciation of the rupee is due to a combination of easing of import restrictions, weak exports and shifting of remittances to hawala,” he said.
In order to meet the terms of the $3 billion bailout package from the International Monetary Fund, import restrictions were eased, putting pressure on the rupee. In addition, the currency is under pressure from political turmoil and economic uncertainty.
“Heads of financial institutions have been summoned, while traders on Friday were dissuaded from trading the dollar at or above 306, and we will soon see forex firms summoned by the SBP,” Treasmark, a treasury market platform, said in a statement. Client note on Saturday.
“For this reason, we see the rupee moving in a limited range next week and we may also see some minor consolidation… but with the financial market in such chaos, people are wondering if it really matters now,” she added.
“If nothing is done over the next few days, financial markets will continue to see collapse. The cost of inaction is significant.”
The Monetary Policy Committee will meet as scheduled on September 14 to decide on the interest rate, according to the State Bank of Pakistan, which denied reports that it may conduct an out-of-session review.
Since inflation is likely to remain higher than expected, analysts expect interest rates to likely rise by at least 100 basis points. The CPI will remain high in the short term due to a falling rupee and higher energy prices.
The Bank of Japan kept interest rates unchanged at 22% at its last meeting on July 31. The State Bank of Australia has raised interest rates by 1,500 basis points since September 2021.
“Despite the clarification provided by the Bank of Japan, analysts see a radical shift in monetary policy coming. This will help convince hoarders of forex, commodities and other assets to relax, giving some relief to rising prices,” Tresmark said.