The currency is under pressure again. There is dip-by-dip depreciation every day. It has depreciated by 2.9 percent since 16th October to close at PKR/USD of 285.3 yesterday. There are pressures of payments which are making the currency depreciate slowly. Although, the overall sentiments are better, evident by the bullishness in both the stock market and the bond market, as PSX is at all times high, and the secondary market bond yields are coming down even though SBP has kept the policy rate unchanged.

The overall balance of payment numbers is better too. The remittances are likely to record double-digit growth from the previous month, and the current account is likely to be in surplus too. The IMF review is likely to be successful.

Why then is the currency market bearish? Well, it’s the hangover of excessive selling by exporters in the forward market. The PKR appreciation was a daily phenomenon from 6th September to 16th October. The exporters were selling in bulk in the forward market while the importers were waiting on the sideline for the currency to stop appreciating.

The currency pendulum swung on 16th October, and since then, the exporters in the forward dried up, and importers started coming in flocks to clear the payment. The hangover of the previous cycle continues till date. Although there is some presence of exporters in forward market, the volumes are thin.

Thus, based on this trend, the inflows may be in surplus in the coming 2-3 weeks. And this point is asserted from the fact that the current account is likely to be in surplus in October as compared to a balance current account in September.

The signs are telling. The bond and stock markets are pricing stability (in the short run). The payment pressure in the currency market may subside, and once the PKR stabilizes and shows movement in the other directions, exporters may come again and sell in the forward – as mostly have sold till November. December could be a better month for the currency.

Then the IMF review is likely to conclude successfully by mid-November. The currency market behavior has some linkage to the ongoing review as well. The Fund has issues with the pending repatriations of dividends and royalties. There was a case of clearing some of these during the time when PKR was appreciating (6th September to 16th October). Then SBP cleared its forward liabilities as well -down by a billion dollars in September.

Thus, the appreciating currency during those six weeks bodes well in terms of clearing payments and shedding off forward liabilities. Now there is natural inertia in the market. And this is likely to pass, and if the inflows come in again, the payments and liabilities may clear further.

How to get the inflows? The SBP cannot do much regarding that. The central bank has no dollars to throw in the market (in fact SBP was the buyer when the PKR was appreciating). Thus, there is no magic wand that the SBP can wave. It is about the sentiments that had improved after the crackdown on smuggling and hoarding. There are some signs of grey market flows building again. Perhaps, a second round is warranted, after the IMF review.