Open market remains volatile despite significant foreign exchange reserves and decreasing oil import bills
Despite rising reserves and lower oil imports bill of the country, the greenback once again touched Rs 106.50 for buying and Rs 106.80 for selling in open currency market, but it remained stable in the interbank closing at Rs 104.80 for buying and Rs 105.00 for selling.
International oil market is at an 11 years low and the country’s oil import bill has dropped by 12.3 per cent in the first five months of the current fiscal year.
“There is adequate supply of foreign exchange in the market to meet the needs of the various stakeholders, hence the recent fluctuations in exchange rate in the kerb market are hard to explain,” said a spokesman of the State Bank of Pakistan (SBP). He stressed the need for curbing speculative trading which puts undue pressure on the exchange rate.
He further said that SBP Governor Ashraf Wathra had also warned the exchange companies against such practices in a meeting on Monday.
Almost two weeks ago, the local currency received a boost of around Rs 2 due to two major inflows of Asian Development Bank (ADB) and World Bank (WB) of $918 million. At the time, the greenback stood at Rs 103.80 against the rupee in the interbank. The SBP received $500 million from World Bank while $400 million was received from ADB.
Total reserves of the country stand at $20.7 billion, while another $498 million will be received from the International Monetary Finance (IMF) before the end of this month, the official said.
Pakistan has been receiving $2 billion annually under the IMF’s Extended Fund Facility (EFF) programme, which is scheduled to end in September 2016. The central bank is set to receive another $2 billion from the IMF under EFF and the reserves of the country may touch the $23-$24 billion mark by the end of 2016, market sources said.
“There is no major risk as reserves are at a comfortable level, and can cover country’s import bills for 5 and a half months,” an analyst at Topline Security said.
“The likelihood of entering into another IMF program is low if oil prices remain at current levels and remittances continue their existing trend,” he said.
Repayments of this programme start from 2018, hence the analyst said that there would be no major drain on foreign exchange reserves in the near term.
Furthermore, lower current account deficit and expected privatization proceeds would provide cushion to external outlook. Government has projected external debt repayments of $4.1 billion in 2015-16 vs. $3.9 billion in 2014-15.
The exchange companies are also importing $5-$7 million daily to meet their demand, but the dollar is continuously rising in Pakistan.
Due to improving macros and stable political situation in the country, international ratings agencies can potentially upgrade their credit ratings of Pakistan. S&P, in June 2015, changed its outlook from stable to positive and in October 2015 affirmed its positive stance. S&P had updated its credit rating on Pakistan from CCC+ to B- in Aug 2009 and since then economy has shown improvement. Moody’s upgraded Pakistan’s credit rating from Caa1 to B3 in June 2015.
Market experts said that the dollar may decline in the near future, as the central bank is forcing the exchange companies to bring the dollar down. Meanwhile, if oil prices remain low and remittances go up, the greenback may drop in interbank market too.