KARACHI: The rupee is poised to remain in a relatively narrow range in the coming months, even as some of the exceptional dollar support that has helped stabilise the currency may begin to fade, according to a report published on Saturday.
It noted that improving dollar liquidity and increased exports support the currency, though slowing forward bookings and a potential pickup in imports could test the currency’s stability.
The rupee closed at 277.7 against the dollar on Monday. It ended at 277.65 on Thursday. The financial markets were closed on Friday for the Independence Day holiday.
“Exporters have already booked more than $3 billion in forwards, the highest outstanding level in more than six years,” said Tresmark in a report.
“While this has provided meaningful dollar support to the market, new forward bookings have recently begun to slow, suggesting this source of inflows may gradually normalise,” it added.
Pakistan’s exports rose to $2.9 billion in July, the highest monthly reading in five years and the second-highest on record. Still, the outlook for August and September is less encouraging, with softer global demand and signs of stagflationary pressures in the US potentially weighing on shipments. The key question is whether July marked the start of a trend or simply an exceptionally strong month.
Pakistan’s swap book has improved materially from a short position of $1.89 billion to a short position of $880 million. The improvement indicates more comfortable dollar liquidity and could reduce the central bank’s need to buy dollars in the forward market, potentially pushing forward premiums lower in the coming months.
The normalisation in dollar support does not necessarily imply a weaker rupee but suggests that future stability will increasingly depend on genuine export receipts and underlying market demand rather than exceptional inflows or policy support, it added.
A key test will come from Pakistan’s economic recovery. Stronger domestic demand could fuel imports, increasing demand for dollars and putting pressure on the rupee. The central bank has said it wants to avoid another boom-and-bust cycle as growth recovers.
“Our base case remains that the rupee is likely to trade within a relatively narrow range over the coming months. We also expect exporters to continue favouring forward cover, particularly at longer tenors, although the pace of new bookings may moderate.”
The currency’s stability will depend in part on whether foreign investors return to Pakistan’s financial markets. Recent gains have been driven largely by domestic investors, while overseas participation is likely to require greater confidence in the foreign-exchange market, continued political and policy stability, and deeper market liquidity, according to the report.
Interest rates are another key variable for investors. Markets are currently pricing in a relatively benign rate environment. However, the outlook could change if oil prices rise, the US dollar strengthens, or the Federal Reserve adopts a more hawkish stance.
Weaker Chinese economic growth, slower remittance inflows, and renewed domestic political uncertainty could also complicate Pakistan’s economic outlook and put pressure on the currency.