KARACHI - Just like in the year 2008, Pakistans exchange rate may face downside pressures in the coming days due to abrupt spike in international oil prices and the probable weakening of the capital and financial accounts, according to a report from Standard Chartered Bank. The State Banks move to lift restrictions on forward booking of imports with an aim to complete the transition of the Pak rupee to a free-floating regime is likely to pose threat to the local currency in the current environment, the report said. Pak rupee vis--vis the US dollar is expected to depreciate by more than 2 percentage points to 87.50 in the second quarter (April-June) of the current calendar year 2011. The US dollar may also edge over 89 by the end of this year, the report predicted. Oil prices have been increased sharply since the uprising started in Libya and other oil-producing Middle East countries along with rising energy demand from a strengthening US economy. West Texas Intermediate (WTI) crude oil traded above $108 a barrel, the highest price since 2008 while Brent Crude oil reached $122 a barrel on Thursday. The dollar-rupee exchange rate parity closed at Rs85.2 in the inter-bank market while it traded at Rs85.4 in kerb dealings yesterday. In addition, as on April 02, 2011, countrys total foreign exchange reserves stood at $ 17.637 billion. The SCB report stated that Pakistani rupee has been surprisingly resilient since late 2010, despite uncertainty regarding the continuity of the IMF programme and the rapid increase in global oil prices. In 2008, the PKR depreciated almost 28 per cent as elevated oil prices led to a balance-of-payments (BoP) crisis. In contrast, the currency has been relatively stable year-to-date, even as oil prices have traded above $100/barrel (bbl). Significant improvements in the trade balance and robust remittances have been the key factors boosting the PKR. However, Pakistans dependence on oil imports suggests that the current account is likely to deteriorate. At the same time, the outlook for FDI and private capital inflows is bleak. As such, support for the PKR from external balances is expected to recede as the year progresses, the report warned. These risks need to be balanced against the positive outlook for official inflows following the announcement of fiscal austerity measures and the shift in the FX regime. The revival of the IMF and other aid programmes may limit the damage to the PKR to some extent. Hence, we maintain our neutral short-term rating on PKR and forecast a measured move higher in USD-PKR in 2011, wrote Sayem Ali, an economist at SCB in his report. With the PKRs transition to a free-floating exchange rate now complete (following the removal of restrictions on forward booking of imports), positioning and sentiment may exaggerate the immediate impact of balance of payments deterioration on the PKR. Over the medium term, valuations also argue for PKR weakness, he feared. The report said PKR real effective exchange rate (REER) has been appreciating around 7.2 per cent since January 2009, indicating pressure for further PKR depreciation on a nominal effective exchange rate (NEER) basis to restore BoP equilibrium. However, a significant depreciation for the PKR is not forecast. While the PKR REER is overvalued, it remains competitive in relation to regional competitors including the Indonesian rupiah (IDR) and the Indian rupee (INR), the report mentioned. The report has forecast that cotton prices would average USc 154/lb in 2011, up from USc 94/lb in 2010, further boosting exports. Higher prices of rice and wheat will further lift export earnings, given that Pakistan is the worlds fourth-largest exporter of rice and seventh-largest producer of wheat. The exporters maintain low hedge ratios on USD-PKR, EUR-PKR for 3-6 months receivables, it recommended. Improved remittances will likely contain the widening of the trade deficit caused by rising oil prices, according to report.