Doubts surround forex rate stability in Pakistan
June 22 2019 11:24 PM
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A teller counts US hundred dollar bills inside a currency exchange store in Karachi. Currency exchange rate remained relatively steady during the week ended on Friday in Pakistan but analysts fear the stability may be short-lived as foreign exchange reserves continue to decline.

Internews /Karachi

Currency exchange rate remained relatively steady during the week ended on Friday in Pakistan but analysts fear the stability may be short-lived as foreign exchange reserves continue to decline.
Currency dealers in the banks said the dollar was traded at around Rs157 while some trades were conducted at Rs157.20.
This was slightly lower than the rate at the start of the week on Monday when the greenback was traded at Rs157.50 in the inter-bank market.
“The market has eased up; there is enough liquidity to stabilise the exchange rate,” said a senior banker adding the inflows have also improved.
Bankers noted that amid usual trend of higher outflows as the financial year draws to a close, the exchange rate stability is a welcome sign of improved market confidence.
They said the expected inflows from other bilateral sources like the World Bank have also improved the market sentiment.
On the other hand, dealers in the open market said the exchange rate remained steady during the week but were sceptical whether the stability will hold in the days ahead.
The open market also witnessed slight fluctuations in the exchange rate as the greenback was being traded at Rs157.
Dealers said dollar was in surplus as around millions were being deposited in banks every day.
“I believe enough deprecation of local currency has already been carried out and this could likely be a part of the agreement with the International Monetary Fund (IMF),” said Exchange Companies Association of Pakistan secretary general.
He said the confidence has visibly improved but it was not possible make any claims on the long-term stability of the exchange rate.
Moreover, analysts were also doubtful about the rate stability and fear that more devaluation may likely be on the cards mainly on account of declining foreign exchange reserves.
“We fear the rupee could weaken further by the month-end, until receipt of first tranche of IMF programme (post IMF board approval) is received,” said a JS Research report issued. The State Bank of Pakistan governor recently said the IMF would release its first tranche under the bailout package after board meeting takes the final decision on July 3.
“Particularly, given close to $1bn per month of debt repayments, we anxiously await any positive developments on debt rescheduling,” said the report.
“Simply put, with such a low base of foreign exchange reserves, any sharp outflow of dollar would lead to further depreciation of the local currency, whereas an inflow would create a favourable reaction on the rupee,” said the report.
These factors have played out in the last few weeks and this ‘new normal’ will inevitably hold over the next twelve months.
“If we assume that the rupee has stabilised, it would imply that all the external funding requirements are being satisfied by an equal amount of inflows, whereas right now we are teetering at the very edge,” said the report.



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