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Fall of Pakistani currency: An overview

In the inter-bank market, rupee was available in terms of dollar for buying and selling at Rs 106.75 and Rs 107.25, dealers said. The national currency shed 20 paisas against the dollar for buying Rs 107.50 and it also lost 50 paisas for selling Rs 108.00. In the Open Market Pak Rupee depicted high and low of Rs 109.50 and Rs 105.55 respectively, however, the PKR-US$ exchange rate in the interbank market closed at Rs 107 per US$. The rupee, however, gained 40 paisas versus the euro for buying and selling at Rs 125.60 and Rs 126.85.

Sterling rose while the euro edged down as traders waited to see if British Prime Minister Theresa May has finally clinched an elusive deal with Irish and EU officials on how they would run their post-Brexit Irish land border. An agreement would remove the last obstacle for opening free-trade talks with the European Union. The euro inched down 0.1 percent to $1.1761, around its lowest levels since Nov. 22. The dollar was available against the Indian rupee at 64.49, the greenback was at 4.085 in terms of the Malaysian ringgit and the US currency was trading versus the Chinese yuan at 6.618.

According to the reliable sources, four banks approached the central bank, seeking dollars to meet their requirement. Upon refusal of central bank, however, they started buying dollars from the inter-bank, which pushed the rupee down versus the dollar, hitting at Rs 110.

State Bank of Pakistan said almost half way into the current fiscal year; Pakistan’s economy is well positioned to achieve the real GDP growth target of 6 percent in 2017-18. This positive outlook is supported by a broad-based 8.4 percent growth in large scale manufacturing during the first quarter of the year.

Major crops, while services are likely to benefit from the positive spillovers of the growing commodity sector. Strong growth in private sector credit, particularly in fixed investment loans, also depicts the fervor in the real economic activity. Moreover, inflation continues to remain low and stable, and stood at 3.6 percent during the first five months of the year.

Exports recorded a double-digit growth during July-October fiscal year 2018; Foreign Direct Investment reached a nine-year high. Workers’ remittances posted a modest growth. The continuation of high growth in imports led to a widening of current account deficit. This movement in the exchange rate is based on demand and supply of foreign exchange in the interbank market.

SBP is of the view that this market-driven adjustment in the exchange rate will contain the imbalance in the external account and sustain higher growth trajectory. The exchange rate will continue to reflect the demand and supply conditions; and SBP stands ready to intervene.

Firm conditions have prevailed in the cotton market. Sharp increases in ICE futures and devaluation of the rupee against the US dollar (resulting in increased cost of imports) have added further support to an already tight domestic market.

Desirable local cotton rates have increased by Rs. 50 – better quality cotton has commanded between Rs. 6,850 and Rs. 7,100 per maund (roughly 76.50/79.30 US cents per lb), ex-gin and lower grades between Rs. 5,900/6,500 per maund. Most mills have reacted cautiously and thus limited business has taken place.

 

The rupee has come under sharp pressure from the US dollar with the exchange weakening to Rs. 108.80 against the dollar. Reaction from the State Bank of Pakistan will be key in determining if the exchange rate will be corrected (as evidenced during July of this year), or whether the currency is allowed to devalue. Amid a policy decision to allow rupee depreciation, Pakistan and an International Mone­tary Fund (IMF) delegation concluded the first round of discussions on the country’s economy.

The State Bank of Pakistan (SBP) would now let the currency exchange rate to adjust to market conditions after many months, rather years, of resisting expectations. This move allowed the currency rate to touch Rs110 to a dollar before settling down at around Rs107 and did not go beyond official estimates. The IMF had concerns over the health of Pakistan’s external sector, but the government authorities had different opinions. The IMF team will prepare a report of its assessment and share with Pakistan officials for the feedback and discussions.

IMF mission to Pakistan, led by Harald Finger, will visit Lahore next week for talks with provincial authorities including Chief Minister Shahbaz Sharif and independent observers and researchers from the business community and representatives of a private-sector university.

Government believed the currency adjustment would help shift foreign currency holdings from commercial banks currently standing at a higher level of around $6 billion back to official reserves and help divert remittances to official channels with declining gap among the official, banking and open market rates.

For the first time after many months, the central bank is reported to have noticed exporters to offload their positions. In the long run, the recent imposition or increase in the import duties and regulatory duties would make unnecessary imports expensive.

Projections for CPEC-related repayments were discussed by the two sides in connection with debt sustainability analysis as $23 billion worth of projects were currently under various stages of implementation, including $17 billion in the energy sector by the private sector. IMF is useful for international financial institutions and investment sentiment. The two sides are reported to have noted that recent bond results were very positive for the fact that this was the first fund rising from international capital market without the IMF program.

After many years and attracted favorable response and rates despite high twin deficits, showing confidence of international investors and good reflection of fundamentals. The IMF director of Middle East and Central Asian Department (MCD), Jihad Azour, the former finance minister from Lebanon, will also join the final round of talks next week.

Pakistan would continue to remain under the IMF’s post-program monitoring (PPM) until about 2023 for borrowing significantly higher than its quota. An overview of the economy is on track and key economic indicators were moving in the positive direction. The significant growth had been achieved in revenue generation in the current fiscal year.

IMF says that Pakistan had achieved fiscal consolidation without compromising on expenditures on development and social protection. The government had set its eyes on achieving 6 percent GDP growth which was inclusive, pro-poor and sustainable. The recent successful launch of Sukuk and euro bond were also discussed briefly.

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