PKR: contraction of CAD and rise in FX reserves trigger another round of appreciation against USD

November 1, 2019 (MLN): Pakistan rupee has witnessed another round of appreciation by 0.44% in October, where the rupee traded at PKR155.67 against the USD in the Intermarket (appreciated by 69 paisa as of October 31, 2019).

PKR improved Rs.8.32 against the dollar since its lowest value set on June 27, 2019, which marked a gain of 5.10%. This appreciation in the value of the currency reduced the value of external debt by Rs.891 billion till October 30.

This appreciation in the value of currency is attributed to several factors which include: improvement of external account on the back of some structural reforms and contraction in the current account deficit (down by 13% MoM in September 2019); hefty decline in oil import bill by11.63% MoM in September 2019; marginal increase in foreign reserves in October by 0.06% MoM and funding by IMF for all major outflows.

Bond Yields

Bond yields have begun stabilizing in the secondary market but T-bill yields are still attractive for investors providing 13% yield rate. The decline in the secondary market yields of T-Bills and PIBs gained momentum in October after the auctions in which Cut off Yield came down by 43 basis points for 3-month, 53 basis points for 6-month and 105 basis points for 1-year T-Bills.

Yields for PIB’s continued to decline for all tenors in October. Weighted Average Yields (WAY) for 3-Year PIB dropped by 115 basis points to 12.64% to 11.71%; 5-Year declined by 90 basis points to 11.51% and 10-year were lower by 89 basis points to 11.26%.

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