PKR gains 5.41% value against USD in 5MFY21

December 3, 2020 (MLN): Pakistani Rupee secured the title of Asia’s third best-performing currency last month and the bittersweet journey continued in November as it witnessed an appreciation of 0.524% against US Dollar (USD) during November i.e. PKR gained by 83 paisa against the dollar to close at Rs 159.42 against the greenback in the interbank market.

During the month, the domestic currency made a high of Rs 158.16, seen on Nov 13, down by 1.31%, and a low of Rs 161.04 on Nov 23, when compared to the previous month’s close of Rs 160.26.

The local unit gained 5.41% during five months of FY21 while it appreciated by 3.10% in the corresponding period of FY20. It fell 2.87% in CY20.

The appreciation in the rupee, which started due to upbeat economic data like higher workers’ remittances (USD 2.3 billion in Oct’20), current account surplus (USD 99 million in Oct’20), Roshan Digital Accounts, upsurge in Foreign Direct Investment by 151% YoY in Oct’20  and lower inflation, was accentuated by the improvement in rupee-dollar parity, reducing the pressure on the external debt despite the net USD 48 million outflows from the Stock market in November.

It is prudent to mention that the G20 countries had given relaxation to their heavy-debt states, including Pakistan, to repay their loans by 2020. Most recently, they extended the easing to June 2021.

As per market analysts, the second wave of epidemics, a sharp fall in international oil prices, and a six-month extension of the G20 debt repayment deadline helped fuel the rupee’s strength.

The Pakistani Rupee traded high on positive global equity markets amid the optimism over the development of a coronavirus vaccine.

On the downside, the PKR also showed a sign of depreciation against USD in November, which was first seen on Nov 16 as there was a talk in the market that the rupee depreciated because of the Finance Adviser's statement regarding the resumption of talks with the International Monetary Fund (IMF). The rupee slipped by 1.82% in seven trading days, from Rs 158.163 to Rs 161.047.

The report by AHL anticipated PKR to be 161 per USD by Dec-20 with REER inching up wherein SBP is expected to adopt greater flexibility in the short term, allowing PKR to appreciate, but still accumulating more reserves. According to the latest data of the Real Effective Exchange Rate (REER) index (measuring competitiveness through relative currency parity) for Oct’20 released by SBP shows that PKR is heading towards its par value that has increased from 91.78 to 97.11 in just two months and further appreciation of the currency, while possible, might hurt export competitiveness, especially with regional economies opening once again after prolonged lockdowns.

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