Can Pak Rupee Recover to Rs. 220-230 Against US Dollar By Early 2025?

The Pakistani Rupee is poised to gain over Rs. 55 or 20 percent in the coming months to rise to as high as 220 against the US Dollar from today’s level of 277.9/$.

The real interest rate has moved into positive territory for the first time in 3 years, which will help reduce debt financing costs and reduce forex pressure. Last month, American multinational financial services company Goldman Sachs said in a report that positive interest rates could be the catalyst needed for PKR’s recovery if inflation starts declining.

An ex-senior central bank official told ProPakistani in exchange for anonymity,

Every quarter there’s a special indicator determining currency levels. In my view, real interest rates will help move PKR in the 220-230 range by early 2025. Inflation is showing a downward trend, which improves the likelihood of higher real positive interest rates in the future. Looks like the State Bank will cut its key lending rate soon, so the real positive rate will move even higher. Consequently, the real cost of Pakistan’s debt financing will decrease, which will help improve the PKR’s position against top currencies.

He also drew attention to last week’s treasury bill auction where SBP raised cut-off yields for a mid-tier treasury bill by 1 percent. “I was surprised. The regulator must clarify this. Doesn’t make sense with inflation going down. Are we intentionally misreporting inflation data? The next MPC press release better explain this,” he commented.

It is pertinent to mention that the current fiscal year’s second last meeting of the monetary policy committee is on 29 April 2024.

Mixed Views

“But the rupee bulls have a tough lap to finish this year. Disinflation will definitely help PKR post double-digit gains. A lending help by the International Monetary Fund this month may offer further support to real interest rates and the rupee. Any problems pertaining to short-term rollover arrangements with other creditors threaten to unleash the opposite effect,” the official further said.

In another world, some traders who have been hoarding US dollars since the February 8 elections see the country’s balance of payment crisis to worsen due to a possible supply crunch in oil markets worldwide. Some importers are getting dollars easily through banking channels.

A few traders maintain that the rupee’s losing streak in the last 2 weeks of March was due to demand-and-supply issues. There was draconian pressure from importers who were anticipating higher profits in the days ahead.

The country’s latest trade numbers revealed that Pakistan’s import bill had gone up by almost 26 percent in March 2024.

This was seen in other commodity pullbacks i.e. inflation which didn’t make the cut in last month’s import bill, giving importers no other option but to hold dollars for a little more time. Reports suggest most of them are waiting for banks to buy them out at premium quotes.

Expectations

From what this analyst has seen in the year so far, 2024 will be another year where foreign factors will determine the PKR trend. Besides the local currency, Pakistan’s dollar bonds are expected to rise this year. This assumption is based on some of the world’s leading money managers banking on the IMF to extend another bailout to Pakistan.

Everything is based on the coalition government adhering to the new IMF program which may be offered to Pakistan sometime before end-April 2024. This would definitely require reforms such as hiking fuel and electricity rates even higher, which is this analyst’s baseline argument — and fear.