The rupee should remain stable against the dollar next week

A trader counts stacked rupee banknotes. — Reuters/File
  • Traders say market participants are eyeing the central bank’s monetary policy meeting on Monday.
  • Say Market will also assess the impact of the opening of imports of luxury goods on the rupee.
  • The Forex trader claims that the monetary policy decision will be key in assessing the future direction of the Rupee.

The rupee is expected to remain stable against the US dollar over the coming week due to weak demand for the local unit from importers, traders said.

They said market participants were also eyeing the central bank’s monetary policy meeting on Monday.

The greenback traded at 213-214 in the outgoing week. It closed at 213.98 to the dollar on Monday and ended at 214.65 on Friday. The rupiah lost 0.31% against the greenback over the week.

“The market has stabilized over the past week, and the rupiah is likely to remain stable at the same levels in the coming days,” said a trader.

“Apart from currency inflows and outflows, the monetary policy decision will be key in assessing the future direction of the rupee. The market is eyeing Monday’s meeting,” the trader added, The news reported.

The government lifted the ban on imports of non-essential and luxury goods to meet an International Monetary Fund (IMF) condition ahead of the board meeting later this month to restart the loan scheme. However, he announced the imposition of heavy taxes on fully-built cars, cellphones and electronics to discourage imports.

The market will also assess the impact of the opening of imports of luxury goods on the rupee, according to traders.

Foreign currency reserves have started to rebuild. Foreign exchange reserves held by the State Bank of Pakistan increased slightly by $67 million or 0.9% to $7.9 billion as of August 12.

In a survey by Tresmark Research, 69% of traders predicted no change in interest rates. The SBP raised the policy rate by 125 basis points (bps) to 15% on July 7.

Unchanged rates in the previous auction and the fact that the central bank will not seek positive real interest rates are the main causes of the “no change” market sentiment, according to the poll results.

“However, in our view, the most likely outcome is a rate hike of 50 basis points,” Tresmark said in a note.

“The main reasons for this are that inflation has still not peaked, the Fed is raising US interest rates aggressively (with LIBOR [London Interbank Offered Rate] equivalent trending around 3.50%), the rupiah appreciated 4 out of 5 days last week, but is still considered vulnerable and the government has shown no particular interest in slowing growth, compressing twin deficits, and the central bank may feel compelled to raise policy rates to temper expectations,” he added.

The poll also suggested that the majority believe the sweet spot for USD-PKR is between 205 and 215. While the rate is good for the economy and tempering inflation, it can be difficult to maintain the level on certain factors.

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