Rupee comes out of sudden swings, banks on foreign inflows

The rupee comes out of sudden swings and is expected to remain stable during the current fiscal year because of being market-determined, although it may lose further value on anemic foreign inflows, analysts said.

In interbank trade, rupee appreciated by 6.25 percent in FY2021. The rupee closed at 157.54 per dollar, 0.13 percent stronger than the previous close of 157.7 in the interbank market.

In the open market, the rupee rose by Rs10 or six percent. The rupee ended at 158 to the dollar, compared with 158.20 on Tuesday. It closed at 168.05 on June 30.

However, the rupee is forecast to trade at 160 and 166 by this yearend and June 2022, respectively, according to analysts.

The rupee will remain relatively stable as it's a market determined now "so we may not witness exorbitant swings up or downs," said Mustafa Mustansir, head of Research at Taurus Securities Limited.

"Remittances, further disbursement from the IMF and the export growth would make the rupee strong," Mustansir said. "We expect the rupee to devalue in FY2022. So far, our expectation is 2.5 percent devaluation from current level but it could be more than that also with remittances growth to slow down in FY2022 along with a surge in trade deficit, and this would put pressure on rupee."

Saad Hashemy, executive director at BMA Capital sees the rupee to remain stable in the near term based on rising foreign exchange reserves. "FX reserves have now risen to over $16 billion (with SBP) compared to around $12 billion in the beginning of the fiscal year. Key risks to this outlook would be the external current account performance, which will in turn depend on oil/commodity prices and performance of exports," Hashemy said.

"We'll see some outflow of dollars putting pressure on the rupee. And finally, Pakistan would need to resume making loan repayments also."

The continuation of a deferred oil supply deal worth $1.5 billion and $4.5 billion new framework agreement with the International Islamic Trade Finance Corporation from Pakistan to finance oil, liquefied natural gas and fertilizer imports could provide some relief to the foreign exchange reserves. Remittances rose 29 percent to $26.7 billion in July-May FY2021.

The rupee is also expected to take a cue from the central bank's monetary policy direction. Interest rates are likely to hike towards the last quarter of 2021.

During the year, Pakistan successfully concluded $2.5 billion of Eurobond issuance while also resumed the earlier stalled IMF programme. The current account balance showed a surplus of $153 million in 11 months of FY2021 against a deficit of $4.328 billion in the previous year.

The current account deficit is predicted to reach $8 billion or 3 percent of GDP in FY2022. The government has lifted all coronavirus-related restrictions amid substantial drop in the infection cases, which will result in increase in domestic demand and more imports.

Pakistan has to resume the suspended loan repayments to G-20 countries from January next year. G20 countries suspended the repayment of $3.7 billion loan by Pakistan, under the debt service suspension initiative, till the end of this year.