Karachi: Traders said that due to the reduced demand for US dollars from regular buyers and the increase in the inflow of US dollars, the rupee will gain more gains next week.
In addition, the foreign exchange market may react positively to the Financial Action Task Force’s decision to keep Pakistan on the gray list, as this may lay the foundation for closer contact with the International Monetary Fund.
The FATF statement acknowledged that the country’s progress in the action plan may be beneficial to the local currency.
“We expect the rupee to strengthen further in the next few days. We see an increase in the inflow of US dollars from multilateral sources, exports and remittances. On the demand side, demand from the oil sector and other importers has weakened.
“Improvements in the real effective exchange rate (REER) and exporters’ expectations of further appreciation of domestic units in dollar sales are also expected to support the rupee.”
Traders expect the rupee to US dollar exchange rate to fall below 161 next week.
In the past week, the rupee in the inter-bank market has risen by 1.01 rupees to 161.37 rupees per dollar.
Currency traders believe that on the last day of the outgoing week, the supply of U.S. dollars was good and exceeded the demand of importers, so the rupee appreciated against the U.S. dollar.
The World Bank’s board of directors approved the financing of the Punjab Province’s resource improvement and digital effectiveness program of $304 billion, which also boosted the currency.
The current account surplus in September was $73 million, and the surplus in the first quarter of this fiscal year was $792 million.
After three weeks of decline, as of October 16, the country’s foreign exchange reserves increased by US$287 million to US$19.301 billion. These optimistic data helped the rupee to appreciate against the dollar.
Traders said that the country’s foreign exchange reserves and external accounts growth caused the real effective exchange rate to rise to 91.69 (as of August 2020).
These figures show that the rupee underestimates the rupee relative to its main trading partners, but pave the way for further strengthening of the local currency.
However, two factors can only limit dependence on benchmarks. One is external and fiscal sustainability, and the other is that the index only accounts for 11% of the weight.
As long as the regulator maintains its relevance, REER may still be important to traders.
Traders said that although FATF’s statement was neither shocking nor surprising, it gave Islamabad a four-month window to correct 27 remaining six points related to anti-money laundering and terrorist financing deficiencies.