Mettis Global News
Mettis Global News
Mettis Global News
Mettis Global News

Trending :

PKR FY21 Review: A year marked by optimism

Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp

July 2, 2021 (MLN): Against a backdrop of ample liquidity and positive economic tailwinds, the Pakistani Rupee (PKR) strengthened by 6.67% against US Dollar in the financial year 2020-21 to close at Rs157.74, finishing a year marked by best performance since 2003 despite the fact that last quarter of FY21 has been choppier for the local unit in the forex markets.

The local unit lost 4.76% of its value against the American currency in FY20.

During the outgoing year, PKR closed at an all-time low of 168.43 on August 26, 2020 while it made a high of Rs 152.28, seen on May 7, showing an appreciation of 10% when compared to the previous year’s close of Rs 168.05.

With more liquidity injected by central banks to fight the pandemic, it took time for currencies to find their levels as capital flows, the country's debt payments, forex buffers, crude oil prices, imports, all played a key role in determining the exchange rate. 

At the start of FY20, PKR remained stable for months and gradually appreciated when the first COVID wave subsided as the rupee fell to 165.60 on Sept 2, 2020 and then it exhibited a sharp appreciation of 4.43% against the greenback in the third quarter of FY21, becoming the world’s best-performing currencies.

After its strongest in March, the domestic currency began to slide as it dropped by 3.64% to its weakest on June 23, 2021 due to the multiple issues that weighed on the rupee such as virus infection ratio relentlessly surged amid the third spell of the pandemic, higher imports and crude oil prices.

Further, Currency watchers believe that foreign debt payments and imports pickup also weighed on the rupee amid the better economic activities and upward movement in international commodities.

This depreciation round in the last quarter was also attributed to the end of the financial year wherein the demand for the American currency is normally high due to the payment of profits on foreign investment. In addition, the home unit gave up gains due to the uncertainty about the ongoing talks between IMF and government, FATF outcome and stronger dollar factor amid FED’s hawkish tilt.

However, with an annualized volatility of 3.5%, the optimism over vaccination drive, infusion of massive fiscal stimulus by governments and central banks all over the globe and pent-up demand when economies reopen after the end of Covid-19 lockdown restrictions encouraged investors with positive market sentiment, and the rupee vaulted back to 157.

The pleasant upside surprise of rebound of GDP growth rate at 3.94% for FY21 from a 0.45% contraction in a previous year and other macroeconomic releases confirmed the resumption in economic activities.

This fiscal year appreciation is attributable to upbeat macro fundamentals along with noteworthy policy measures by the State Bank of Pakistan (SBP) to curb market speculation and hence, helping in subsiding Pakistan’s macroeconomic risks. The factors that primarily contributed rupee to maintain an upward trajectory against the greenback include; current account surplus of $153 million during July-May FY21 against the deficit of $4.328 billion recorded in July-May FY20. The surplus during the said period was emanated from a record $26.74 billion inflows of workers’ remittances during 11MFY21 that eased pressure on the country’s currency, resulting in the improvement of foreign reserves position. Moreover, foreign financial assistance worth $12.135 billion during July-May FY21 from multilateral donors also strengthened the national currency against the greenback.

Meanwhile, Roshan Digital Account (RDA), an initiative taken by the SBP, has recently achieved a milestone as the inflows crossed $1.5 billion in just ten months of its inception. This momentum is expected to continue in the coming months, further boosting the country's foreign exchange position.

As a result, the overall condition of SBP’s reserves improved to $16.12 billion as of June 25, 2021, from $12.04 billion, including the IMF tranche of 499 million and $2.5 billion raised through Eurobonds, providing a much-needed buffer to prevent sudden changes to the country's external account position.

Speaking to Mettis Global News on FY closing of PKR-USD, Mr. Zafar Paracha, Former Secretary-General of Exchange Companies Association of Pakistan said,This appreciation is due to the remarkable policy measures of SBP and government’s performance since last two years which have created a positive environment across the stock market as well.”

Improved statistics of current account deficit, LSM growth, remittances, foreign exchange and other positive indicators have made the rupee gain 6.67%, he added.

When asked about the expectation of dollar value in FY22, the former Secretary said, “I foresee the rupee to stand around 155 during CCY22 and FY22 if IMF does not impose any condition regarding the devaluation of the local currency.” Meanwhile, the rupee may disrupt if the government considers the demand of exporters to devalue the rupee. Other than that, the position of the rupee will remain strong, he further added.

Talking about the PKR depreciation of 2% in June, he commented: “It happened due to financial year closing as well as importers' pressure. However, it will revert back to its previous position within the next two weeks if no pressure comes from the IMF side.”

Commenting on the same, Mr. Saad Hashmi, an Economy Expert at Topline Securities said, “The 2% depreciation is not a major movement and likely due to market flows.”

Sharing his viewpoint to Mettis Global, he expects the rupee to remain stable in the near term. “The key risks to this outlook would be the external current account performance, which will, in turn, depend on oil/commodity prices and performance of exports,” he stated.

Copyright Mettis Link News

Posted on: 2021-07-02T11:30:00+05:00

42031