The rupee will remain under pressure until the IMF review is completed

• The rupee has depreciated by Rs 2 against the dollar this week.
• Local closes at Rs 287.03 per dollar on Friday.
• The analyst does not expect the rupee to break above 290.

KARACHI: The rupee is expected to remain under pressure against the dollar next week pending the completion of the International Monetary Fund’s (IMF) first review of the country’s $3 billion loan programme, The news it said on Sunday, citing a report from Tresmark.

The local currency depreciated by Rs 2 or 0.60% against the dollar this week to end at Rs 287.03 on Friday. The foreign exchange market was closed on Thursday due to a holiday.

The IMF mission began its review of Pakistan’s bailout package on November 2 and is expected to be completed by December 15.

The review will determine whether Pakistan will receive the second tranche of $700 million in December. The country received $1.2 billion in July from the global lender as the first installment of the standby deal.

“While there will be pressure on the rupee until the IMF comes in, analysts do not expect it to trade above 290 in the interbank market,” financial terminal Tresmark said in a client note.

“In our view, the government will use the IMF approval, once received, to strengthen the rupiah towards the 280 level.”

Tresmark said the rupee is under pressure as export earnings have fallen and the State Bank of Pakistan (SBP) is buying dollars to shore up its reserves to meet IMF requirements.

Term premiums have gone up with one, two and three month premiums reaching 315, 500 and 725 paisa respectively.

“This is due to a combination of several factors SBP is closing down its forward portfolio (SBP forward balance has come down from $4.5 billion in June to $3.5 billion in September as per IMF wish list).

Despite these attractive premiums, exporters are not interested as they weigh the region’s geopolitical risks and wait until the IMF’s stance on the next tranche becomes clearer, it noted.

Tresmark said it was not unexpected that the IMF expressed concern about the currency’s rapid devaluation and asked the government about its stabilization plans.

“Terrible hard work has gone into reversing the rupee’s trend from 314 to 275 and that hard work should not go to waste by letting it depreciate again needlessly.”

The latest data on remittances, along with improving market sentiment and hopes for further improvement in the balance of payments, bolsters the belief that the rupee will settle soon.