‘Short-lived’ rupee recovery, says Goldman Sachs

4 min read

Bloomberg reported Thursday that Pakistan’s currency has recently made significant gains against the US dollar but Goldman Sachs Group Inc. predicts that this recovery will fade due to financing shortfalls across the economy, and that the gains will eventually fade away. 

As a result of the crackdown by the interim government on illegal dollar trade, the rupee was the top-performing currency in September, having recovered significantly from a record low earlier in the same month after the currency fell to a record low earlier that month.

In a report published by Goldman analysts led by Kamakshya Trivedi on Wednesday, Goldman analysts led by Kamakshya Trivedi wrote that the recent appreciation of the Pakistani rupee would probably not last long, since interest rates are soaring and there is only a limited number of short-term arrangements with the IMF and bilateral financing to maintain the external balance.

In advance of the upcoming elections, the market will continue to demand a premium for Pakistan’s rupee.

There has been a severe crackdown on illegal dollar trades in the country as authorities continue to crack down on the illegal dollar trade over the last few days, which has caused the rupee to rise nearly 9% since late August.

The risk remains as investors prepare themselves for possible unrest during the first few months of next year when the nation prepares to hold elections as it prepares to hold those elections.

A lack of exports and remittances has also contributed to low dollar inflows in the country, making it more dependent on foreign aid and remittances from the Middle East and China to meet its dollar needs.

Despite Pakistan’s economically disastrous past, a team from the International Monetary Fund is scheduled to visit the country next week in an effort to assess how it’s doing ahead of the disbursement of the loan as part of its $3 billion bailout plans.

Until at least the next tranche of the IMF’s loan programme is completed, analysts believe that the rupee will trade in a narrow range between 275-285 per dollar until at least the next tranche of IMF’s loan programme is finalized.

Since the rupee was falling against the greenback in the recent past, traders have been pointing out that the currency has recently lost ground against the greenback as a result of increased demand from importers for dollars, whereas currency exporters’ dollar sales have slowed as they anticipate a return to current levels.

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