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Rupee seen falling to 325 against dollar in 2024: analysts

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11 months ago

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  • Local currency under pressure over last seven years.
  • Rupee has seen a 20% fall against the dollar this year.
  • As per REER index, it remains undervalued.

KARACHI: As Pakistan grapples with high external debt repayments, dwindling foreign exchange reserves and expected monetary easing, the rupee is expected to extend losses against the dollar in 2024, The News reported citing analysts.

Over the last seven years, the rupee has remained under pressure, which is why its woes, as per the analysts, are far from over.

The local currency has seen a 20% fall against the dollar this year, which is higher than that recorded in the last five year’s average fall of 13% a year and the 10-year average of 8%, Topline Securities, a brokerage company, said in a note.

External financing gaps, challenging global financial markets, and local political instability have severely impacted foreign exchange reserves and built pressure on the rupee.

As per the real effective exchange rate (REER) index, rupee is undervalued. The latest November’s REER index published by the State Bank of Pakistan stands at 98.18 versus the last 10-year average of 106.6.

Considering Pakistan’s external payment risk and other factors, Topline expects the currency to fall to 310 against the dollar by June 2024 in the interbank market. It also sees the rupee dropping to 325 by the end of next year. The rupee closed at 282.20 to the dollar on Wednesday, compared with its previous closing value of 282.37.

Pakistan has been grappling with record-high inflation as a result of rising energy prices to meet the reform targets mandated by the IMF’s lending programme. From July through November of FY2024, the average rate of inflation is 28.6%. Inflation is expected to decline, supporting the case for interest rate cuts in 2024.

As significant debt obligations approach early in the coming year and the run-up to the elections, another analyst projects that the rupee could weaken to 295-296 versus the dollar in 2024. The rupee may weaken further due to expected monetary easing.

Pakistan’s external funding needs are estimated at $28.7 billion for the current fiscal year, including $24.6 billion for debt repayments and $4 billion for the financing of the current account deficit. Out of this, $5.48 billion has been repaid already and $9.3 billion has been agreed to be rolled over, according to analysts.

This result in a funding gap of $14 billion is expected to be filled by foreign investments ($1.5 billion), the International Monetary Fund’s disbursements under its loan programme ($3 billion), and loans from other multilateral creditors ($4.5 billion). After this, the shortfall in the country’s gross external financing requirements and available funding is $5 billion. However, the country’s official reserves have fallen to around $7 billion as of December 15.

When the caretaker government took charge in August 2023, the rupee came further under pressure amid speculation that the non-political caretaker setup might allow the currency to fall. As a result, the rupee fell by 6% (from 288 to 307) in the interbank market, while it plummeted by 10% (from 296 to 328) against the US dollar in the open market from August 14, 2023 to September 04, 2023.

The rally in US currency after August was mainly driven by open and black markets where the premium (open market vs interbank rate) increased from 1-2% to 8-9%.

The caretaker government, along with the State Bank of Pakistan (SBP), took several measures to cool down the demand in the open market. The measures included (1) tightening security along the border to prevent currency smuggling, (2) closure of exchange companies involved in illegal activities, and (3) an increase in the minimum capital requirement from Rs200 million to Rs500 million for exchange companies.

As a result of these measures, the rupee has gained strength in the interbank market, appreciating by 9% from 307 to 282 against the dollar. Meanwhile, in the open market, it has increased by 16%, moving from 328 on September 04, 2023, to 284 as of December 27, 2023.

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Dar chairs the CCOP meeting; Blue World’s bid offer of Rs.10 billion is rejected.

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3 days ago

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The Foreign Minister/Deputy Prime Minister chaired the Cabinet Committee on Privatization meeting.

Other committee members who attended the conference included the Federal Secretaries of several Divisions, the Ministers of Finance and Revenue, Industry and Food, Commerce, Power, and Privatization.

The CCOP took the PC Board’s recommendation into consideration and suggested that Blue World’s bid of 10 billion rupees for the sale of 60% of PIACL’s shares be rejected. The bid was rejected by the CCOP, who chose to follow the PC Board’s advice.

The government’s determination to sell out PIACL through government-to-government or privatization was reaffirmed by the CCOP.

The CCOP was pleased with the Aviation Division’s evaluation of PIACL’s sound financial standing.

Additionally, the CCOP established a committee, chaired by the Minister of State for Finance, to assess potential transaction possibilities for the privatization of the Roosevelt Hotel and the appropriate modes of adoption in light of existing legal rules.

Prior to its subsequent meeting, the CCOP also ordered that all difficulties be resolved and an agreement for the selling of services to an international hotel be concluded.

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The KSE-100 Index has surged by 790 points, resulting in an all-time peak for the stock exchange.

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3 days ago

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The benchmark KSE-100 Index increased by 790 points, marking a new all-time high for the Pakistan Stock Exchange (PSX) at 94,982 points.

The record-breaking performance underscores a surge of optimism and investor confidence in the stock market.

As investors responded to favorable economic signals, the market experienced a significant increase of over 500 points in early trading. Later, the KSE-100 Index reached another record level of 94,786 points after adding 594 points to its upward trajectory.

This positive development comes as the State Bank of Pakistan’s (SBP) foreign exchange reserves saw an increase of $84 million, reaching $11.26 billion during the week ending November 8, according to data released by the central bank on Thursday.

This represents an increase of 0.75% from the previous week. In addition, the nation’s total liquid foreign reserves experienced a modest increase, increasing by $33.7 million or 0.21% week-on-week to $15.97 billion.

In contrast, commercial banks’ reserves experienced a decline of $50.3 million or 1.06%, ultimately settling at $4.71 billion.

Furthermore, the economic team of Pakistan has expressed confidence in the discussions with the International Monetary Fund (IMF). Minister of State for Finance Ali Pervaiz Malik, in an exclusive conversation with Samaa TV, claimed talks were moving in a positive direction.

Highlighting improvements in Pakistan’s economic conditions, Malik noted substantial progress over the past six months to a year. He emphasized that Pakistan’s current economic situation has seen significant enhancement, with a reduced current account deficit of only $100 million in the first quarter, a reflection of the government’s strategy to increase remittances and boost exports.

Malik shared that discussions with the IMF are primarily focused on external financing, and while there have been speculations about a potential mini-budget or an increase in the petroleum levy, he clarified that these are currently premature considerations.

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Positive IMF negotiations propel KSE-100 Index above 94,000 points

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4 days ago

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As a result of investors’ optimism about the reported progress in the continuing talks with the International Monetary Fund (IMF), the Pakistan Stock Exchange (PSX) experienced a robust surge.

The benchmark KSE-100 Index of the PSX, which tracks market sentiment, rose 713 points to a new record high of 94,068 points, breaking above the 94,000-point barrier, as the trading session began.

Early in the day, the stock market began its upward trajectory as the KSE-100 Index steadily rose, gaining 574 points to reach 93,932 points. A possible agreement with the International Monetary Fund (IMF) might lead to more fiscal stability and back Pakistan’s economic reforms, which is why investors are so optimistic about the country’s future.

Officials from the Federal Board of Revenue (FBR) informed the International Monetary Fund (IMF) on Wednesday that the government would not be introducing a mini-budget and would instead continue to aim to collect Rs12,970 billion in taxes each year.

In line with continuing discussions with the Fund, FBR sources revealed that petroleum goods will not be subject to the General Sales Tax (GST).

The fact that Pakistan’s tax-to-GDP ratio has increased from 8.8% to 10.3%, a 1.5% gain viewed as a favorable sign of Pakistan’s fiscal policies, has reportedly pleased the IMF, who has voiced satisfaction at Pakistan’s recent economic performance.

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