Following bond float, pressure on rupee likely to ease

Research house believes calls for currency depreciation will dissipate

KARACHI: Banking on the positive impact of $2.5 billion that Pakistan has raised through fresh bonds, currency dealers expect the pressure on rupee to subside in the open currency market.

The rupee came under mounting pressure in the open market this week in the wake of violence before the end of a three-week-long blockade of Islamabad that saw political tensions rise in the country.

“Pressure on the rupee was fast building up mainly due to the growing political tensions, but it will diminish significantly in coming weeks,” Forex Association of Pakistan President Malik Bostan said while talking to The Express Tribune.



The situation deteriorated on Wednesday when some people were not able to buy dollars even at the exchange rate of Rs109 or Rs110 in the open market, a currency dealer in Karachi said. Dealers were only exchanging small amounts and were reluctant to accept the demand for more dollars, anticipating the greenback would strengthen significantly in coming days. Small deals were done in the range of Rs107.60-108.10 on Wednesday.

However, dealers pointed out that the news that Pakistan had successfully floated international bonds soothed the market and the dollar was seen trading in the range of Rs107.60-107.90 on Thursday.

Exchange Companies Association of Pakistan General Secretary Zafar Paracha commented that the development would definitely improve sentiments for the rupee in coming days.

However, he said, it was yet to be seen whether that could help the rupee gain ground against the dollar.

Pakistan on Wednesday raised $2.5 billion from global capital markets by issuing a five-year Sukuk (Islamic bond) and a 10-year Eurobond at relatively lower rates.

This is a big relief for the businesses that were preparing for significant rupee depreciation in coming weeks due to the rising trade deficit.

Some analysts had even predicted that the government would be forced to let the rupee fall by December 2017. “The bond issue will put to rest calls for rupee depreciation in the near term,” JS Research commented on Thursday.



Pakistan has recorded a current account deficit of $5 billion in the first four months of fiscal year 2017-18, up 122% year-on-year.

With the inflow of $2.5 billion, Pakistan’s foreign exchange reserves are expected to reach $22 billion and the import cover will cross the essential three-month level, thereby giving confidence to investors and driving away fears of a major depreciation, according to an AHL Research report.

Pakistan is expected to bridge its balance of payments deficit with the help of new bonds, borrowing from commercial banks, launch of an amnesty scheme, increasing foreign direct investment and resumption of privatisation inflows post-elections, the report added.

Published in The Express Tribune, December 1^st, 2017.

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