Rupee Faces Pressure Amid Fiscal Year-End Dollar Demand

Summary:

Karachi: The Pakistani rupee is projected to face pressure next week due to the fiscal year-end dollar demand from importers but is not expected to surpass the 280 per dollar level, according to a report by financial terminal Tresmark. During the holiday-shortened trading week, the rupee fluctuated narrowly, ending at 278.51 against the dollar on Friday after closing at 278.60 on Thursday.
Key developments of the week included the KSE-100 briefly crossing the 80,000 level, a drop in Pakistan’s real effective exchange rate to 100.7 in May from 104.4 in April, and a $270 million current account deficit following three months of surpluses.
Tresmark anticipates pressure on the rupee next week due to substantial June-end payments, deteriorating current account deficit, slowing reserves, and expectations of further rate cuts. The report also notes the impact of pressure on other Asian currencies, with the Indian rupee hitting a record low.
Despite potential rupee weakness, the currency is unlikely to breach the 280/$ level, owing to central bank interventions and special convertible rupee account (SCRA) inflows. Additionally, dollar-rupee forward premiums slightly increased due to declining US bond yields.
Political skirmishes around budget approval pose significant economic risks. The budget lacks widespread support, and any substantial changes could jeopardize negotiations with the International Monetary Fund (IMF), potentially leading to severe economic consequences.