Standard Chartered forecasts USD-PKR at 140 by end-2018

October 17, 2018 (MLN): PKR has depreciated another 7% over the past week amid a rising import bill led by higher oil prices, says a report published by Standard Chartered Bank.

PKR REER has now corrected by 20% since early 2017, and is approaching its long-term average.

As per the report, it is expected that PKR will depreciate further following the government decision to approach the IMF for a bailout.

The Standard Chartered Bank has raised USD-PKR forecast to 140 by end-2018 (previously 130) and 155 by end-2019 (previously 139)

USD-PKR adjusted higher to 133.64 on 9 October in the interbank market, roughly 7.5% above the previous close.

Following the latest round of depreciation, the PKR real effective exchange rate (REER) has corrected from a high of 128.6 in March 2017 to c.104 currently, as per the estimates.

In fact, the PKR REER is now approaching its long-run average (20Y MA: 103.39). However, further FX adjustment is likely following the government’s approach to the IMF for a bailout.

“Given the persistent decline in FX reserve cover at the State Bank of Pakistan, we welcome the authorities’ decision to approach the IMF,” the report said.

Although the government appears to agree with IMF prescriptions for a weaker PKR and tighter monetary and fiscal policy, SCB expects IMF programme negotiations may not be straightforward.

“We expect the IMF to emphasise greater FX flexibility and the need to rebuild FX reserves. As such, while we maintain our view of further PKR depreciation, we revise our USD-PKR forecast trajectory higher” the report added.

Standard Chartered has forecasted USD-PKR at 140 by end-2018 (previously 130), 144 by Q1-2019 (133), 148 by Q2-2019 (135), 152 by Q3-2019 (137) and 155 by Q4-2019 (139).

Copyright Mettis Link News