The rupee is likely to remain stable until June, but the future looks shaky

• Traders are watching SBP’s monetary policy decision.
• Rupee gains, closes week at 278.38 against US dollar.
• Analysts predict the rupee may weaken if interest rates are cut.

KARACHI: The rupee is likely to remain flat till June, but traders are expecting a possible weakening of the currency due to an expected rate cut by the State Bank of Pakistan (SBP) before the end of the current fiscal year. The news reported on Sunday.

Traders are watching the central bank’s monetary policy decision to forecast the course of the local currency in the coming days.

During the outgoing week, the local unit faced downward pressures in the interbank market due to weak exports, remittance inflows and import payments.

The rupee on Monday closed at 278.33 against the US dollar, however, it made gains to end the week at 278.38 per dollar.

Analysts predict that the local currency may weaken if interest rates are cut, however, it is expected to remain stable until June.

According to Tresmark, which is a financial terminal, Pakistan’s foreign exchange holdings remain stable despite the country repaying $1 billion in Eurobonds.

This was due to its substantial current account surplus, even if it had to borrow some dollars in the short term.

“Reserves will increase with the final tranche of the IMF stand-by arrangement. The nation’s finance minister expects reserves to approach $10 billion in June. This time last year, the SBP’s share of reserves was about $4 billion dollars.” he said.

Tresmark said the liquidity position is not too bad.

“Although some imports are building up again, we hope exporters will sell dollars going forward, which will ease this equation. We are still buying dollars from the interbank market and will continue to do so to build reserves,” he added.

It added that the Real Real Exchange Rate (REER) reached 104, a sharp increase. Although it is high, it is still not alarming, and as long as the liquidity situation is strong, nothing will go wrong.

All this points to a great exchange rate situation, but it is necessary to review this in a month, because the strength of the dollar can cause other currencies to weaken, and other currencies may have to follow suit. At 157/$, the yen has fallen to a 34-year low, Tresmark added.