Another 4% devaluation required to bring PKR to fair value: Insight Securities

December 04, 2018 (MLN): Despite 20% PKR devaluation from December 2017 till October 2018, the real effective exchange rate (REER) fell by merely 13%, to the 108 level. In response to this, Research Analyst Zeeshan Afzal at Insight Securities believes that another 4% devaluation in addition to the recent 3.6% depreciation in the last few days, is required to bring the currency to its fair value.

In his latest research note, he points out that at a time when markets are buzzing with news that Chinese support will be concentrated in trade/investment, a steep hike of 150 basis points in Monetary Policy rates, and currency devaluation means that Pakistani economic managers have opted immediate economic consolidation, “a usual IMF recipe”.

He imparts his PKR forecast at 145.7 per US dollar, GDP growth in FY19 at 4.3%, ‘while CPI is likely to average at 7.8% (peaking at 10.2% in March 2019).’

He further added that in the next 12 months, Current Account Deficit is expected to drop to $6.3 billion (down from initial $8.8 billion, after accounting for the $2.5 billion Saudi deferred oil payments facility), indicating a low finance gap.

Speaking to Mettis Link News, Mr. Zeeshan Afzal elaborated that CAD has been shrinking lately, and considerable financing gap has been covered already. In the next 12 months, this deficit is going to continue down this trend and drop to $6.3 billion”

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