December 31, 2020 (MLN): The calendar year witnessed volatility in Pakistan’s forex markets. The pair USD-PKR moved with a delta of Rs 4.98 per dollar or a depreciation of 3.12% to close at Rs 159.83 against the greenback in the interbank market.
During the outgoing year, the domestic currency made a low of Rs 168.44 on Aug 26, down by 8.07%, and a high of Rs 154.17 seen on Feb 14, when compared to the previous year’s close of Rs 154.85.
However, when we compare average USD-PKR prices in 2018 and 2019, the local unit depreciated by 11.51% from Rs 138.86 in CY18 to Rs 154.85 in CY19, which was commensurate with the average national CPI inflation reading at 11.10% for the same period.
This year's events have made it quite clear that the financial crisis caused by the COVID-19 pandemic had a more profound effect on global forex markets than any other factor. But we know with chaos comes opportunity and so it did in the case of Pakistan. The rupee weakened on the back of global risk-off sentiments and steep monetary easing by 625 points, however, that was counteracted by a current account surplus of $1.6 billion during Jul-Nov FY21 due to the plunge in oil prices, making imports cheaper and record inflows of workers’ remittances to $11.8 billion in Jul-Nov FY21.
In fact, the Rupee has strengthened of late due to Roshan Digital Accounts, a six-month extension of the G20 debt repayment deadline coupled with the positive global equity markets amid the development of a coronavirus vaccine.
Finance Ministry in its Monthly Economic Outlook highlighted that the current levels of reserves are sufficient to cover the import of around 3 months. As per the latest data, Pakistan’s total foreign exchange reserves reached $20.25 billion till Dec 24, billed as a firewall against any unexpected outflows of funds. The State Bank of Pakistan’s aim is to accumulate reserves to prevent extreme volatility or any sharp appreciation in the local currency as it hits the real economy adversely.
According to the report by Taurus Securities, being artificially overvalued before, the Rupee has adjusted ~60% in value since FY17 after putting in place a market – based mechanism as desired by the IMF in 2018. The PKR now clearly trades according to market forces – reflected in the interbank and KERB rates. Accordingly, since Dec’18 the Rupee’s Real-Effective Exchange Rate (REER) has remained under 100, indicating that it is fairly valued compared to other benchmark currencies.
Nevertheless, the research expects PKR to adjust during 2HFY21 on account of the rising import bill due to a pick-up in oil prices as well as imports for the domestic industrial sector. Similarly, as Covid-19 vaccines start circulating and lockdowns ease, it is expected that global benchmark currencies to strengthen against the Rupee. Overall, the research forecasts that the currency will average at PKR 164.7 per US Dollar in FY21.
Today, Pakistani rupee (PKR) appreciated by 45 paisa against US Dollar (USD) in the interbank session as the currency closed the day's trade at PKR 159.83 per USD, against yesterday's closing of PKR 160.28 per USD.
The rupee saw a volatility free session as very little movement was recorded trading in a range of 53 paisa per USD showing an intraday high bid of 160.03 and an intraday Low offer of 159.57.
Within the Open Market, PKR was traded at 159.50/160.50 per USD.
Alternatively, the currency lost 1.5 rupees to the Pound Sterling as the day's closing quote stood at PKR 218.45 per GBP, while the previous session closed at PKR 216.97 per GBP.
Similarly, PKR's value weakened by 17 paisa against EUR which closed at PKR 196.64 at the interbank today.
On another note, within the money market, the overnight repo rate towards close of the session was 6.10/6.25 percent, whereas the 1 week rate was 6.50/6.75 percent.
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