Rupee: Not so nervous 90s

The local currency and Indias legendary batsman Sachin Tendulkar are both in search of a century; but neither is likely to hit the mark soon.
The Pakistani rupee has been prone to slippage in the foreign exchange market in recent sessions, trading over Rs99 against the US dollar in the open market on Monday. But chances are that the local currency will regain strength in coming days and is likely to hover in the range of Rs97-98 per dollar, in the inter-bank market.
There is precious little rationale at the moment for a sustained drive of dollarization of domestic assets at the moment. The open market is thin; with average daily volumes hovering around the 10 million dollar-mark. The direction of the rupee-dollar exchange rate is likely to be provided by the inter-bank market which generates trading volumes of closer to 350 million dollars each day.
At the moment, punters in the open market and analyst at the State Bank of Pakistan are in agreement; the market is over reacting and will correct soon. This reaction is based on the premise that repayments scheduled to the IMF in this fiscal year run in excess of one billion dollars, while the current account deficit will likely stand around 200 million dollars, each month over this period.
Foreign direct investment flows to the country will remain elusive. And it is also true that the Balance of Payments is under pressure; but there has been no fundamental change in the macroeconomic scenario over the past week, so there is hardly any justification behind the Rupee dropping two percent against the Greenback.
Further, the real effective exchange rate has not appreciated enough to justify a sharp depreciation in the exchange rate of the local currency. On purchasing power parity, deceleration in the inflation is hinting towards a more stable exchange rate.
Nor are there any explicit or implicit efforts by the central bank to devalue the currency. There holds no or little truth in the rumours that this fall is due to pressure of IMF.
This is a knee-jerk reaction; sanity shall prevail soon. Analysts in the capital market and at the treasuries of commercial banks are cautious over the handling of upcoming payments of disinvestment in ICI and HSBC, and Chevrons exit. But the prospective outflows from this development will tally around 150 million dollars. On the other hand, sugar exports are likely to bring in 200 million dollars above and beyond the respective export target. Then the US Government has also promised to release another 640 million under the Coalition Support Fund within weeks. The biggest worry is repayments to the IMF. The remedy for this is another IMF programme.
Smooth depreciation in the local currency is inevitable. But this crazy free fall ought to halt!