Sep 09, 2020: European stock markets climbed at the open on Wednesday despite Asian equities sliding and an overnight rout on Wall Street.
London's benchmark FTSE 100 index gained 0.2 percent to 5,941.19 points.
In the eurozone, Frankfurt's DAX 30 index won 0.4 percent to 13,021.96 points and the Paris CAC 40 gained 0.4 percent to 4,992.49.
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October 31, 2020: The Oil and Gas Regulatory Authority (OGRA) on Saturday issued a price-revision notification of Liquefied Petroleum Gas (LPG) for the month of November.
According to the notification, the authority increased the locally produced LPG price by Rs114.05 per cylinder of 11.8 kilogram.
After the revised price, the cylinder would be sold in the open market at Rs 1,530.34, which was available at Rs 1,416.29 during the month of October.
Whereas, the per Metric Ton (MT) LPG rate has been fixed at Rs 129,689.49 for the month of November.
The commodity sale price per MT was Rs 120,024.19 during the month of October .
The new price will be effective from November 1.
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October 31, 2020 (MLN): The Government has decided to reduces the price of various petroleum products from Nov 01, 2020.
According to the Ministry of Finance, the price of Petrol has been reduced by Rs.1.57 per liter while the price of high speed diesel has been cut by Rs0.84 per liter.
New Price of Petrol is 102.40/liter and HSD 103.22.
Light diesel oil and Kerosene have remained unchanged at Rs.62.86 and Rs.65.29.
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October 31, 2020 (MLN): The State Bank of Pakistan (SBP) announced the auction calendar for November 2020 to January 2021 in which it plans to raise Rs.3.905 trillion through the sale of Government Securities.
The amount maturing during the next three months is Rs.2.912 trillion showing a net borrowing requirement of Rs.993 billion by the government.
The SBP plans to auction Rs.2.40 trillion in short term Market Treasury Bills (MTB), Rs.375 billion in Fixed Rate Pakistan Investment Bonds (PIBs), Rs.980 billion in Floating Rate PIBs (PIBFRR), Rs.105 billion in Variable Rental Rate GOP Ijara Sukuk and Rs.45 billion in Fixed Rental Rate GOP Ijara Sukuk.
The 10 Year Fixed Rate PIB to be issued from December 2020 will be a fresh issue with its coupon revised down from 10% to 8%.
The Floating rate coupon PIBs target amount has been divided evenly between semi-annual and Quarterly Coupon bonds for 3, 5 and 10 years at Rs.420 billion with an addition Rs.140 billion being set as the target for a new 2 year quarterly coupon payment floating rate PIB. The coupon rate for the 2 year PIB is set at 7.158% and will be reset fortnightly.
The quarterly coupon PIBs will be the reopening of Oct 22, 2020 issue with the coupon rate of 7.1178% for 3, 5 and 10 years, while the semi-annual bonds will be a fresh issue with the coupon rate set at 7.20% for 3, 5 and 10 years.
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October 31, 2020 (MLN): Steep increase in food prices is likely to awaken wave of inflationary pressures, as the headline inflation for the month of October 2020 is expected to settle around 8.8%- 9.4% with an average estimate of 9.08% YoY compared to 9.04%YoY in the last month and 11.04%YoY in October 2019, as per the projections put forth by various brokerage houses.
This would bring 4mFY21 average inflation to 8.9% as against 10.32% in the corresponding period last year. To note, this is within the range of SBP’s inflation forecast of 7-9% for FY21.
On monthly basis, the inflation is expected to move up with an average estimate of 1.85% MoM compared to the inflation of 1.54% MoM in September 2020.
The food inflation which has been in double digit since August 2019, is the major factor in stimulating October’s inflation. While a strong incitement will also be provided by quarterly house rent adjustment in Oct’20. In addition, the lag impact of PKR depreciation against dollar is also likely to reflect in inflation pace.
The impact of rise in food prices is going to come broadly from both perishables and non-perishables, where chicken, wheat, onion, and tomatoes would be the major contributors. Taking cues from weekly SPI data, under food index which inflated by around 16% YoY during October’20, the prices of fresh milk, wheat, meat and spices surged by 13% YoY, 23% YoY, 11.6% YoY and 40% YoY respectively. Similarly, sugar and tomatoes’ prices also increased by 32.7% YoY and 76.7% YoY respectively. The massive upturn is attributable to shortages of wheat, sugar, tomatoes and other items due to supply disruptions instigated by recent heavy monsoon rains and floods, and lower crops production.
According to the report by Shajar Capital, the food index has surged rapidly since the start of the pandemic as the utility food prices have surged to multi years high, where Flour per bag and Sugar prices have soared to Rs 1,043 per 20Kg and Rs 99 per Kg respectively in the month of Oct’20, despite the permission of import of Wheat and Sugar from international markets at lower prices.
Some minor respite is likely to come on the back of trivial adjustment made in administrated fuel prices amid benign international oil price and strong PKR. As per the report by BIPL Securities, monthly fuel adjustment was also favorably adjusted which will help contain the headline inflation somewhat. However, another impetus from a revision in house rent index which is expected to see a monthly inflation of around 0.4% will erode the favorable high base effect.
On the other hand, transportation index is expected to decline by 1.53% YoY, mainly due to 33% YoY decline in Arab Light prices, 8% YoY decline in petrol prices and appreciation of PKR against dollar by 4.51% YoY during the month under review compared to Oct’19 prices.
Since Rupee has shown potency against USD, this, along with weak oil prices in international market and promising external account position on the back of improved Current account balance, higher remittances and comfortable Real Effective Exchange Rate (REER), are likely to keep inflation in check going forward.
However, the food inflation will remain the major concern as the lower sowing and shortage of food supply would keep food prices on higher side. In addition, further hike in electricity prices in conjunction with the surge in gas meter rent by the OGRA will keep inflation index elevated.
From a monetary vantage, with IMF program currently dormant, SBP would maintain the current policy rate at 7% in upcoming MPC meeting in order to stimulate economy. However, as the inflationary pressure builds and IMF program is revived, the SBP may be compelled to revive the real interest rate corridor once again, said the report by BIPL Securities.
CPI Projections for October 2020 | YOY | MOM |
|---|---|---|
Pearl Securities Ltd | 8.84 | 1.6 |
Spectrum | 8.90 | 1.71 |
Arif Habib Limited | 9.16 | 1.9 |
Darson Securities | 9.20 | 1.95 |
BIPL Securities | 9.20 | 1.90 |
Abbasi and Company Ltd | 9.00 | 1.80 |
Taurus Securities | 8.90 | 1.69 |
Aba Ali Habib Securities | 9.06 | 1.84 |
Summit Capital | 8.80 | 1.60 |
Al Habib Capital Markets | 9.12 | 1.89 |
Ismail Iqbal Securities | 9.30 | 2.10 |
Shajar Capital | 8.80 | 1.59 |
Foundation Securities | 9.10 | 1.90 |
Next Capital | 9.40 | 2.13 |
Intermarket Securities | 9.35 | 2.10 |
Range | 9.4 - 8.8 | 2.13 - 1.59 |
Mode | 8.90 | 1.90 |
Median | 9.10 | 1.89 |
Average | 9.08 | 1.85 |
Expected Average Inflation in 4MFY21 | 8.90% | |
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October 30, 2020 (MLN): Pakistan has been riding high on its recent economic successes, be it an improvement in remittances, or a rise in the Current Account Surplus. Despite a prevalent pandemic that still isn’t ready to bid adieu to the country yet, Pakistan has managed to perform exceptionally well as compared to not only emerging economies but also some of the highly advanced nations around the globe.
All of these positive economic factors have allegedly led to an appreciation of the Pakistani Rupee (PKR) by almost 4% against the US Dollar during the Financial Year 2021. In other words, the PKR has risen from 168 per USD to around 160.25 per USD, which by every means is a significant achievement for a country like Pakistan.
Taking it as an opportunity to showcase their relentless efforts and talent to bring the economy back on track, various renowned political personalities credited the Government for taking the right steps at the right time. However, the question that has been bugging many is that should the Government of Pakistan take the entire credit for the appreciation of PKR?
While there is no doubt that their policies and timely actions helped in improving several economic factors, but to say that PKR benefitted from only these factors is slightly fallacious, to say the least. What many have failed to notice or are conveniently ignoring is that the US Dollar itself has depreciated against all the major currencies, thereby naturally helping PKR appreciate.
In fact, the USD Index has fallen by 10% since the imposition of lockdown in March, and by 5% during the ongoing fiscal year. This point is further validated by the Pakistan REER, which suggests that the local currency appreciated by only 2% FYTD against its trading partners.
The major forces behind the depreciation of the safe-haven seem to be the expectation of stable rates over the next few years as indicated by the Fed, as well as significant quantitative easing. Besides, several countries are now making lesser and lesser use of USD for trading purposes. This comes as a setback to particularly those who see USD as a mechanism to make short term yet high returns.
Coming to the initial point, to say the PKR has appreciated on its own merit is nothing short of being a bit disingenuous. An example of this would be the change in LSMI growth, which is one of the major economic indicators. As shown in the graph below, the LSMI went up by 19.14% and 20.09% in May and June, whereas PKR declined by 1.79% and 2.94% against USD, respectively. July was the month where both LSMI and PKR followed the same trajectory, before parting ways in August again.
Similarly, if we compare the performance of PKR against the Current Account Balance from March till September, we will notice that both of them are idiosyncratic in all months except March and April. This again goes on to show that while PKR is significantly influenced by the trade performance, it is not entirely dependent on it.
Despite this, several ministers have gone on to credit the incumbent government for this unearned achievement on various platforms, and to be fair to them, it's difficult to gauge whether they are fooling us or being fooled themselves.
Keeping these pointers into consideration, the biggest concern now remains is that whether the local currency would be able to sustain its victory in the coming periods or fall flat on its face once the USD starts gaining prominence again.
The answer to that question is subjective. Nobody knows where PKR is headed not just because of the market-based mechanism in place but also the fact that the rupee is somewhat sentiment-driven. Business Recorder, in one of its research reports, has rightly pointed out how the rupee in March depreciated more than it should have because of the negative sentimentalities in place, and how it is appreciating more than it should because of the bullish sentiments that have taken over.
The Current Account has been in surplus for four out of the past five months, and there have been consistent inflows from multilateral channels, which has made investors and traders hopeful about the direction that the currency would take. This hope and positive outlook regarding PKR is itself the very reason why the currency is doing great and likely to perform even better.
Not just the economic factors, a number of initiatives taken by the State Bank and Government, which includes the launch of Roshan Digital Account, are expected to play a huge role in the performance of PKR. Roshan Digital Account, whose aim is to help and encourage Non-Resident Pakistanis to invest in capital markets, is already getting an overwhelming response with more than 341 stock investment accounts opened.
However, merely considering sentiments to predict the trajectory of PKR would be a major understatement of the currency itself. The SBP would not allow too much volatility in the currency market even if it takes PKR to new heights, as the same volatility will come to bite the central bank in the face when the sentiments take a u-turn. It is also important to keep in mind that the current account surplus may take a slight hit owing to the lower interest rates and rising demand, as it would increase the cost of imports.
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