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Monthly Review: PKR remains pressured; loses 0.61% value against USD

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June 06, 2021 (MLN): The month of May saw some concerns grow over the health of the rupee as annualized volatility picked up by 3.25% due to the third wave of the pandemic that hit hard, triggering covid-19 restrictions to curb the virus spread. Pakistani Rupee (PKR) lost 0.61% of its value against US Dollar (USD) to close at 154.40 on May 31, 2021, marking its worst one-month drop in FY21.

The rupee extended its second consecutive monthly loss that began in April, losing 0.45% against the greenback. Compared to the closing value of PKR 163.10 on May 31, 2020, the home currency has gained PKR 8.7 or 5.63% against the American currency.

The pair USD-PKR moved up with a delta of Rs 13.65 per dollar or an appreciation of 8.84% against the greenback during 11MFY21 while it strengthened by around Rs 5.43 or 3.52% in CY21, as per data compiled by Mettis Global.

While in March, the rupee rose by 3.50% -its best monthly performance this fiscal year so far.

The key data points showed the rupee witnessed some appreciation at the start of the month as it made a high of 157.28, seen on May 7, up by 0.77% when compared to the previous month's close of 153.45 due to the better inflows amid remittances, charity, Roshan digital account (RDA) that drove currency higher. Eid and Ramadan's seasonality were the main triggers of this appreciation. However, after the resumption of the long Eid holidays, the home unit lost its ground and made a low of 154.84 on May 27.

The strong performance of workers’ remittances continued as it rose to an all-time high of $2.8 billion in April 2021 that somewhat soothed worries about the pace of imports as this unprecedented growth in remittances contained current account balance and forex reserves at a 4 year high, showing the economic revival after the damages caused by the COVID-19. Such optimism spilled over to the domestic capital market and in turn, supported the home currency.

In addition, surprisingly, the country’s economy registered a V-shape recovery as the GDP growth rate for FY21 is estimated at 3.94% after a 0.47% contraction in a previous financial year but it has not been enough for the rupee to maintain the upward momentum. On this, Former Treasury Head-Chase Manhattan Bank, Asad Rizvi cautioned not to mix up rupee with projected GDP by National Accounts Committee.  The low base rate supports a higher growth rate; however, he said via his Twitter handle that the release of 4th quarter Trade figures, Current Account, Balance of Payment (BoP) and Remittances data will confirm the real growth figure.

“As we all noticed that at the beginning of the year dollar reached PKR170, and then gradually it came down to 151 due to EID.  This appreciation is mainly attributable to workers’ remittance which was recorded at Rs2.7 billion, the high till now as per SBP data. And the current situation tells that this number might not fall but rise for the month of May for which numbers are yet to come,” Malik Bostan, President of the Forex Association of Pakistan said while talking to Mettis Global.

According to him, the Roshan digital account project, a major initiative by the State Bank of Pakistan, in collaboration with commercial banks operating in Pakistan, is a complete success for the state that has so far-fetched nearly $1.25 billion. This momentum is expected to continue and cross $10 billion mark in the future which will further augment the FOREX position of the country

Speaking to Mettis Global News on the May closing of PKR-USD, Zafar Paracha, Former Secretary-General of Exchange Companies Association of Pakistan said, “PKR-USD comparison is always a process of time being. But the fault lies within the market speculators and bank treasurers who take advantage of the situations and use it for their own benefits. They know when the payments are about to arrive and they start playing their artificial game.”

“Unfortunately, the currency rate is now being treated as stock exchange market. This manipulation, inside trading and holdings, should be stopped by the SBP which will certainly make a substantial impact on the currency and economy,” he added.

On whether this trend of FY21 rupee’s appreciation will continue in the next fiscal year, the former secretary said, “ I don’t see USD rate to rise more than 155 in the coming FY22, nonetheless, if IMF puts pressure on the government, then the rates may vary. Similarly, there is pressure building up from the exporters who want the dollar to reach around Rs160 as they claim to face losses. So, if the government does not come in these pressures, the greenback may remain around Rs155.”

As macroeconomic indicators are improving, the situation looks stable, but then again government still needs to take more proactive policy measures to stop illegal exports and informal remittance channels, he added.  

When asked about the expectation of dollar value in FY21, Malik Bostan said, “This is a difficult question to answer because one thing that stands in the way of Pakistan is the repayment of a debt of $20 billion in December and then in June. Although, He said that the government has targeted to maintain $30 billion in their reserves for any such payments.”

“I see the dollar value to reach somewhere around Rs152-157 in the next fiscal year because if it exceeds from this, that will create inflationary pressures,” he concluded.

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Posted on: 2021-06-06T13:57:00+05:00

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