KARACHI: The Pakistani rupee is expected to remain range-bound in the near term, even though the country is facing significant outflows, including approximately $200 million in oil payments due in the coming week and a $1.3 billion Eurobond maturity on April 8, a report said on Saturday.
There is no cause for panic regarding the rupee, as pressures are being managed. The currency has remained stable, trading at 279 to the dollar, despite the widening conflict in the Middle East. The rupee closed at 279.22 per dollar in the interbank market on Tuesday and ended at 279.17 on Friday.
The International Monetary Fund (IMF) and Pakistan have reached a staff-level agreement on the country’s loan programme, which is a crucial step toward unlocking $1.2 billion in funding. This agreement, pending approval from the IMF board, will grant Pakistan access to $1 billion through the Extended Fund Facility and $210 million from the Resilience and Sustainability Facility. If approved, this would bring the total disbursements under the ongoing programme to $4.5 billion.
Tresmark, a financial terminal, stated in a client note that five key factors will determine the trajectory of the rupee: hot money, capital flows, imports, remittances and government intent. However, the firm anticipates that the local currency will remain range-bound in the near term, with a gradual depreciation expected if the conflict continues.
“Our base case remains 282-284/$ by June, without any steep devaluation,” Tresmark’s report said.
“It has been 30 days since the start of the conflict. As highlighted earlier, if it extends beyond the 2-3 month window, the consequences can change materially,” it added. “At this stage, we do not expect a prolonged conflict. Not because of intent, but because of capacity. Neither the participants nor the global system is positioned to sustain it for long.”
The government intends to keep the rupee largely stable, as this stability is an important indicator of economic strength. Besides this, a weaker currency can contribute to imported inflation, which policymakers are eager to avoid, according to the report.
At the same time, while regional currencies have been under pressure (the Indian rupee at an all-time low of 95/$), the Pakistani rupee has already undergone a significant adjustment in the past, moving from 180 per dollar to 280 per dollar. This creates some buffer relative to peers. The implication is that the adjustment, if required, is more likely to be gradual and managed, rather than abrupt.
According to the report, there has been an outflow of more than $350 million in portfolio investment since the start of the year, largely from T-bills and equities, driven by US dollar strength and a widening Pakistan risk premium. This is meaningful. However, the remaining stock of portfolio investment is already small (around $600 million). As a result, the report does not expect a further exodus beyond $100-150 million from here. This suggests that while the initial adjustment has already happened, the marginal pressure from portfolio flows is now limited.
The report said that upcoming oil and debt payments are sizeable, but not unexpected. The central bank has already been actively managing liquidity, including buy/sell swaps to support reserves. Reserves have increased by $544 million in the first 19 days of the conflict, indicating that funding is being managed. Seasonal demand for dollars around Haj is not a major concern, as it is typically offset by Eid-related inflows. “While the outflows are large, they appear manageable at this stage. We also expect IMF tranche approval and inflow by end-April, which should provide key support,” it said.
