Key Takeaways:
- Experts predict the new IMF deal might lead to a notable depreciation of the local currency.
- The IMF’s perception of the current exchange rate as managed could result in adjustments.
- Expected $6 billion IMF loan inflows might initially support the currency market.
Concerns Over Currency Depreciation
Financial experts are concerned that a new agreement with the International Monetary Fund (IMF) might significantly depreciate the local currency. The IMF views the current exchange rate as managed, which could prompt adjustments leading to a decrease in the currency’s value.
IMF Loan Agreement on the Horizon
The Finance Minister announced that a $6 billion loan agreement with the IMF is likely to be finalized next month. This news has been positively received in the currency market, with expectations that the IMF inflows will further support the exchange rate.
Strengthened Reserves and Stability
Atif Ahmed, a currency dealer, noted that the recent increase in State Bank reserves suggests that the current exchange rate stability could continue for an extended period. He also expressed optimism about increased remittances and foreign direct investment in the financial year 2023-24, expecting further inflows from international financial institutions in FY25.
Debt Servicing Challenges
Despite these positive signs, some experts worry about the substantial debt servicing requirements, approximately $25 billion for the current fiscal year, which could destabilize the exchange rate. Balancing these outflows with inflows remains a significant challenge, even with a low current account deficit in FY24.
Currency Depreciation Predictions
Independent economists predict a 10-15% depreciation of the local currency in FY25 following the new IMF agreement. Currency analysts support this view, highlighting that the State Bank has maintained the current exchange rate through various measures, including import restrictions and reduced dollar outflows.
Recent Currency Movements
On Friday, the rupee appreciated slightly against the US dollar in the inter-bank market, trading at Rs278.40 compared to Rs278.61 on Thursday. This 21-paisa appreciation reflects minor fluctuations around the Rs278 mark, indicating relative stability in the exchange rate over the past five months.
