PKR succumbs to political chaos, decline in inflation; falls to a 44-month low against Green back

Pakistan rupee succumbed to political chaos and lost three percent in single session where the currency reached to almost 44 month low level against the green back.

The domestic currency opened at 104.95 but immediately hit the top of 106 to dollar, but speedy slide created panic and in small time it reached to roof and trading around 108.50 to dollar.

The SBP has let the Rupee depreciate for the first time in the 40 months. The Rupee has declined since the morning trade for more than 3.15 in a single day.

The recent numbers have provided room for the Central Bank to readjust the exchange rate as lower than expected inflation numbers were reported for the month of Ramdhan. The inflation number was at its 5 month low for the current month, which has been a consequence of declining oil prices in the international market and decline in the food basket prices during the month of Ramadhan. The expected consequence from the inflation numbers may be seen in the reversal of interest rate cycle from the Central Bank.  

Moreover, the widening of current account deficit which ballooned to 8.9 billion dollars in the 11 months of the current fiscal year, breaching the full year target of 8.4 billion dollars sent shivers to investors. Revenue collection also suffered short fall which to widen fiscal deficit.

The imminent decision of JIT expected this Sunday might not be the last nail in the coffin for the market. As the political drama takes precedence over the market fundamentals, the market will wake to a different reality of economic health which has been deteriorating at an alarming pace.

Since January the 1^st this year, the exchange rate graph has been relatively a straight line witnessing no movement upward or downward and has treaded the space between 104.00 to 105.00 Rupees.

However, it is yet to be seen whether the exchange rate rises beyond the market expectations of (PKR108/US$) which poses a risk of increasing inflation in the coming months.  

Although, from another perspective the beneficiaries of this depreciation will be Textile sector companies who have been suffering from artificial rupee-dollar parity. The depreciation will also benefit the IPP’s and energy sector companies who report earnings in Dollars.

PKR Depreciated in the interbank market by 3.05% and was being quoted at 108.00/108.30.