Possibility of PKR Reaching 220-230 Against USD by Early 2025
In the coming months, the Pakistani Rupee is anticipated to strengthen by over Rs. 55 or 20 percent, potentially reaching 220 against the US Dollar from its current level of 277.9/$.
Positive Shift in Real Interest Rates
For the first time in three years, the real interest rate has turned positive. This shift is expected to lower debt financing costs and alleviate forex pressure. Goldman Sachs recently highlighted that declining inflation coupled with positive interest rates could be pivotal for the PKR’s recovery.
Anticipation of PKR’s Upward Movement
A former senior central bank official, speaking anonymously, suggests that real interest rates could propel the PKR to the 220-230 range by early 2025. With inflation on a downward trajectory, the likelihood of higher real positive interest rates is improving. Moreover, expectations of a key lending rate cut by the State Bank of Pakistan (SBP) further bolster these projections.
Concerns Regarding Inflation Data
Recent developments, such as the SBP raising cut-off yields for treasury bills despite declining inflation, have raised eyebrows. Questions regarding potential misreporting of inflation data and the need for clarification from regulators have emerged.
Upcoming Monetary Policy Committee Meeting
With the second last meeting of the monetary policy committee scheduled for April 29, 2024, mixed opinions prevail. While some anticipate significant gains for the PKR fueled by disinflation and potential IMF assistance, others express concerns about short-term rollover arrangements with creditors.
Challenges and Opportunities Ahead
Traders are divided on the factors influencing the PKR’s recent performance. While some attribute it to demand-and-supply dynamics, others foresee challenges due to a possible supply crunch in global oil markets. Importers’ behavior and the country’s escalating import bill add complexity to the situation.
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Foreign Factors Shaping PKR’s Trajectory
Analysts predict that foreign factors will continue to play a significant role in shaping the PKR’s trajectory in 2024. The potential extension of an IMF bailout, contingent upon government reforms, is expected to impact both the local currency and Pakistan’s dollar bonds positively.
Expectations Amidst Reform Speculation
Expectations hinge on the coalition government’s adherence to potential IMF programs, likely to be offered before the end of April 2024. However, concerns linger regarding the required reforms, including potential hikes in fuel and electricity rates, essential for securing IMF support.
