KARACHI: The rupee is expected to remain volatile against the dollar next week, owing to the surge in the demand for the dollar for import payments.
However, the local currency may get support from the expected inflows from the International Monetary Fund (IMF) by the end of this month. Besides, encouraging inflows of export receipts and workers’ remittances may also help the rupee recover.
The IMF has allocated $650 billion (SDR 456 billion) to boost the global economy, which is facing the coronavirus pandemic. Pakistan is also expecting to receive $2.8 billion by the end of the month.
Analysts said the State Bank of Pakistan (SBP), on July 27, 2021, said that it expects to receive $2.8 billion from the IMF in August 2021 because of the fund’s planned new global SDR allocation.
The IMF inflows can potentially take the central bank reserves cross $20 billion, highest-ever figure in the country’s history against the current high of $19.46 billion in October 2016.
Meanwhile, exports recorded a growth of 17.3 per cent to reach $2.347 billion in July 2021, compared with $2 billion over the corresponding month last year.
Besides, the inflows of workers’ remittances reached to a record high of $29.40 billion. The remittances registered a substantial growth of 27 per cent in the fiscal year 2020/21, compared with $23.13 billion in the preceding fiscal year.
However, the widening of trade deficit may put pressure on the local currency. The trade deficit stood at $3.05 billion in July 2021, compared with $1.68 billion in the preceding month of the last year.
The import bill in the first month of the current fiscal year reportedly increased 46.60 per cent to $5.4 billion, compared with $3.68 billion during the same month of the last fiscal year. The widening of trade deficit may impact the balance of payments for the month.
Meanwhile, the current account posted an unexpected $1.64 billion in June 2021. The monthly current account deficit deteriorated the full-year balance of payments.
After the higher deficit in June 2021, the analysts are now expecting the current account deficit in the range of $7 billion to $8 billion (2.2 per cent to 2.6 per cent of GDP) in 2021/22, compared with the earlier estimate of $4.40 billion for the year.
According to analysts at Topline Research, in the last five years (FY17/21) and 10 years (FY12/FY21), the current account deficit has averaged at $10.2 billion (3.5 per cent of GDP) and $6.9 billion (2.7 per cent of GDP)/annum, respectively.
The analysts estimated the exchange rate of the rupee/dollar would range in between 165 and 170 by December 2021.
During the week (August 2 to August 6), the exchange rate remained uncertain. The local unit lost Rs1.02 against the dollar. The exchange rate closed at Rs163.45 on August 6, 2021, compared with the closing of Rs162.43 on July 30, 2021.
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