Currency experts are voicing concerns that the new IMF agreement may trigger a significant depreciation of the local currency. The IMF considers the current exchange rate to be a managed one, which could lead to a downward adjustment.
Finance Minister’s recent announcement of a likely $6 billion loan agreement with the IMF next month has been seen as a positive development for the currency market. The anticipated inflows from the IMF are expected to strengthen the exchange rate.
Atif Ahmed, a currency dealer in the inter-bank market, noted, “The recent increase in State Bank reserves has bolstered the view that current exchange rate stability could continue for a significant period.” He added that higher remittance inflows and foreign direct investment in FY 2023-24 are expected to increase post-IMF agreement, with additional inflows from the World Bank, Asian Development Bank, and other sources projected to rise in FY25, further enhancing the country’s financial situation.
Despite this optimism, some experts caution that the country faces approximately $25 billion in debt servicing during the current fiscal year, which could destabilize the exchange rate. Achieving a balance between inflows and outflows, particularly for debt servicing, remains challenging, despite a low current account deficit in FY24.
Independent economists predict that the new IMF agreement could lead to a 10-15% depreciation of the local currency in FY25. Currency analysts agree this is possible, given the State Bank’s efforts to maintain the current exchange rate through measures like import restrictions, reduced dollar outflows, and influencing banks to operate within daily trading limits.
Meanwhile, the rupee appreciated slightly against the US dollar in the inter-bank market on Friday, trading at Rs278.40 compared to Rs278.61 on Thursday, reflecting a 21-paisa appreciation. The dollar has been hovering around the Rs278 mark for the past five months, indicating relative stability in the exchange rate.