The rupee can remain limited
KARACHI: The rupee is expected to be constrained next week, depending on the level of demand for dollars from importers, amid a strong recovery in economic activity, traders said.
“In addition to demand from importers, the real effective exchange rate [REER] and the position of the daily entries will be critical in assessing the future direction of the rupee, ”said a currency trader.
“We expect the rupee to trade between 154.50 and 155 in the coming week.”
The rupee fell to 155.25 before falling again to close at 154.43 against the dollar on Friday in the interbank market.
The local unit depreciated 0.52 percent in the outgoing week. The rupee opened the week at 153.70 against the greenback.
The State Bank of Pakistan kept the policy rate unchanged at 7% on Friday, in line with market expectations.
Most traders have delved into the monetary policy statement for future guidance.
The consensus view is that the accommodative stance could continue through 2021.
The Monetary Policy Committee (MPC) expects monetary policy to remain accommodative in the near term, and any policy rate adjustments to be measured and incremental to achieve slightly positive real interest rates over time.
If demand side pressures emerge, as the recovery becomes more sustainable and the economy returns to full capacity, the MPC said it would be prudent for monetary policy to start normalizing with a gradual reduction in the degree of accommodation.
The State Bank revised its gross domestic growth forecast for fiscal 2021 to 3.94% from 3% earlier. This recovery is supported by aggressive monetary stimulus and targeted fiscal measures.
Demand is gradually picking up but the output gap for fiscal 2021 is still in the negative zone (-0.08% of GDP), and the State Bank expects it to remain at a level similar in fiscal year 2022 despite higher growth expectations for the next fiscal year, mainly due to the capacity investment made through the TERF facility.
The central bank maintains its inflation estimate for FY2021, where it expects the Consumer Price Index (CPI) to close near the upper end of the announced 7% to 9% range.
He expects inflation to gradually fall from 5% to 7% over the medium term.
“[The] SBP is waiting [the] the current account deficit must be kept small, in large part thanks to a flexible exchange rate regime, ”Topline Securities said in a report.
“The recent increase in the trade deficit is due to some one-time items, including the import of $ 1.1 billion worth of wheat and sugar. There has also been an increase in imports of machinery, which is a substantial increase in imports, ”he added.
The SBP believes that the story of the growth in remittances still has legs, as there has been an upward trend in the movement of registered workers from Pakistan, he said.