KARACHI: Given that the country's foreign reserves have fallen to an untenable level, economists told The News that the rupee is likely to move in a range-bound manner over the next few days and that the currency market would determine its course with influxes.

The local currency decreased by 49 paisas in the interbank market during the previous week. On Friday, it closed at 225.43 per rupee, while on Monday it closed at 224.94.

The rupee is expected to trade range-bound throughout the upcoming week, but investors seem to be more worried about a sharp drop in foreign exchange reserves, according to an analyst.

In order to determine the future course of the rupee, he continued, the market would also closely monitor how quickly the government moves to fulfil the requirements of the stalled International Monetary Fund (IMF) plan. In November, the real effective exchange rate (REER) decreased from 100.2 in October to 98.8.

As of December 16, the State Bank of Pakistan's (SBP) foreign exchange reserves have fallen by $584 million to $6.1 billion, placing extreme strain on the balance of payments.

Reserves at the SBP reached their lowest level since April 2014. Only five weeks' worth of imports are currently covered by the central bank's reserves. The repayment of foreign loans, according to the SBP, is what caused the drop in reserves.

S&P Global, a global rating organisation, downgraded Pakistan's long-term sovereign credit rating from "B" to "CCC+" due to external risk.

Since September, the IMF has not completed its ninth evaluation.

Concerns have been expressed regarding the fiscal slippages brought on by the disastrous floods and the associated revenue shortfall, primarily from the petroleum development levy. The accuracy of the budgeted flood rehabilitation spending has also had issues.

Analysts anticipate a resumption of the IMF rescue package in the first quarter of 2023.

The administration is set to implement a number of revenue-generating and fiscal-consolidation measures, including the application of general sales tax (GST) to petroleum goods and the removal of GST exemptions, increases in gas pricing, rationalisation of electricity tariffs, etc.

The actions could assist in regaining control of the programme and pave the way for the February 2023 release of the next tranche, worth $1.2 billion.

In order to restore the Fund project that has been stalled, the IMF has reportedly made it plain to Pakistani officials that Islamabad must work toward completing all requests over the next 15 to 20 days.

The IMF has urged Pakistan to allow its currency to appreciate in value as a result of Pakistan's tougher currency controls, which have led to the growth of a dollar black market and discouraged foreign investment through legitimate channels.

In the future monetary policy, there is a potential that interest rates would rise even further.

"In our opinion, raising interest rates is preferable to depreciating the currency because the latter quickly fuels inflation" (fuel, imported inflation, etc.). Additionally, a raise would contribute in providing the local currency some strength, according to Tresmark's weekly statement.

The IMF would also be comforted by a rise in interest rates since it likely already thinks that the government is just interested in appeasing its voter base rather than saving the nation and is also using the flood catastrophe to disrupt the IMF's ecology.