The rupiah should remain under pressure next week

The Pakistani rupee is expected to remain under pressure next week. Photo: AFP/File
  • The heavy current account deficit, soaring oil prices and financial market volatility in the context of the Ukrainian crisis could weigh on the national currency.
  • The local unit fell 1.36 rupees or 0.77% against the dollar in the past week.
  • The foreign exchange market is worried about the growing pressure on the balance of payments, explains a forex trader.

KARACHI: The Pakistani rupee is likely to remain under pressure next week as a large current account deficit, soaring energy and oil prices and financial market volatility amid the Ukraine crisis could weigh on the currency nationwide, analysts said.

The local unit fell 1.36 rupees or 0.77% against the dollar in the past week. It started the week at 175.75 to the dollar and closed at 177.11 on Friday.

The record current account deficit of $2.5 trillion amid high global oil and other commodity prices appears to be a major concern as it increases reliance on foreign loans to meet its needs funding, especially in a situation where imports are growing at a faster rate than exports.

“The foreign exchange market is concerned about the growing pressure on the balance of payments, despite the fact that the central bank has declared that there is sufficient financing available to finance the deficit and that foreign exchange reserves are also at a level comfortable,” said a currency trader.

Additionally, the Russian-Ukrainian conflict presents uncertainties for the Pakistani rupee as well as other global and regional currencies, the trader added.

“We intend to take inspiration for the rupee from how the government is handling the current account deficit and what steps it is taking to improve the current account balance,” he said, adding that the investors were also assessing the Russian-Ukrainian situation and the sanctions imposed by the government. US on Moscow.

“Current account uncertainty and geopolitical tension will put pressure on the rupee next week.” However, some traders expected the local unit to consolidate within the existing trading range.

The Real Effective Exchange Rate (REER) would also help guess the future direction of the Rupee.

The REER reached 97.03 in January from 96.80 the previous month, according to data from Arif Habib Limited.

The REER increased by 0.24% on a monthly basis. However, it has fallen 2.76% so far this financial year, he said.

Traders are now turning to Pakistan’s interest rate scenarios, the Tresmark analyst said. He was of the view that the crisis had led to a commodity boom and that higher oil and energy prices were going to translate into high levels of inflation, but slightly sheltered from the effect of higher base of the previous period.

“And with Ramadan approaching, food prices will also increase,” he said.

He shared that high inflation would test the resolve of the State Bank of Pakistan (SBP) to keep rates unchanged, and analysts expect the status quo to be the path of least resistance. , provided that the local currency remains controlled and foreign exchange reserves (FX) stabilize. .

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