November 30, 2018 (MLN): Upswing of dollar has slowed down but still remains on a historically high level of PKR 138.5 per USD.
During the last trading session of the month, dollar hit a peak level of Rs.143. As the curtains dropped on today’s trade, dollar had appreciated by Rs.4.5 from yesterday’s closing value of Rs.134.
Within the open market, the greenback stood at around Rs.141.5, up by Rs.6.10.
Ever since the new government has taken over, rupee has depreciated by Rs.14.5 on the whole.
Commenting today’s rupee depreciation, research analysts at Topline Securities believe that this was much needed as Pakistan’s external Current Account Deficit (CAD) remained high. For the period Jul-Oct 2018, CAD was reported at US$4.8bn (1.6% of GDP) compared to US$5.0bn (1.6% of GDP) last year.
As a result, Pakistan foreign exchange reserves (reserves with SBP) also declined from US$9.8bn in Jul 2018 to US$8.0bn as of Nov 23, 2018, which is less than 2 months of import cover. This is despite the US$1bn inflow from Saudi Arabia which the country received last week.
“To note, as of Sep 2018, the Real Effective Exchange Rate (REER) stood at 111 when the Pak Rupee averaged Rs124, which had indicated further need to devalue Pak Rupee,” they added.
While this marks the sixth round of rupee adjustment since December 2017, PKR has depreciated by 28% from January 2018 till date.
Impact
Mr. Zeeshan Azhar at Foundation Securities has estimated that every 1% depreciation in Rs-US$ parity has a 0.2% impact on inflation.
“We see the recent inflation at 5.9% in 4MFY19 vs 3.5% in 4MFY18, would push-up FY19 average inflation to 7.5% (vs 3.9% in FY18). Thus, making a strong case for a further increase in the interest rates.”
In conversation with Mettis Link News, he remarked that as a result of rupee devaluation, equity market is likely to slip, therefore the funds will move from equity markets to income funds.
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