July 02, 2020 (MLN): Contrary to the previous session, today, gold witnessed a decrease in demand as the price of 24 Karat-Gold dropped by Rs 600 to Rs 104,600 per tola in bullion markets. The precious yellow metal of 24-Karat had closed at Rs 105,200 per tola on the last day.
According to the Karachi Sarafa Association, the price of 10-gram gold also witnessed a decrease of Rs 514 to settle at Rs 89,678 against Rs 90,192 on the last trading day.
On the other hand, the silver prices remained flat at Rs 1,050 per tola. Similarly, 10-gram silver remained stable at Rs 900.20.
In the global market, gold prices inched lower by $8 to clock in at to $1,774 per ounce while silver was valued at $17.96 per ounce.
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July 02, 2020 (MLN): Pakistani rupee (PKR) appreciated by 1.2 rupees against US Dollar (USD) in today's interbank session as the currency closed the day's trade at PKR 166.89 per USD, against last session's closing of PKR 168.05 per USD.
The rupee witnessed a mild activity in intraday trade as it was traded in a range of 84 paisa per USD showing an intraday high bid of 167.45 and an intraday Low offer of 167.00.
Within the Open Market, PKR was traded at 167/168.50 per USD.
Alternatively, the currency lost 2.5 rupees to the Pound Sterling as the day's closing quote stood at PKR 209 per GBP, while the previous session closed at PKR 206.5 per GBP.
On the other hand, PKR's value strengthened by 7 paisa against EUR which closed at PKR 188.54 at the interbank today.
On another note, within the money market, the overnight repo rate towards close of the session was 6.00/6.50 percent, whereas the 1 week rate was 6.90/9.95 percent.
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July 02, 2020 (MLN): In June 2020, Pakistan’s cost of living, based on Consumer Price Index (CPI), rose to 8.59% in the annual terms compared to 8.22% YoY in May’20 and 8% in June’19 respectively, in line with the market expectations, released by Pakistan Bureau of Statistics (PBS)
This takes the FY20 National CPI average to 10.74% vs 6.80% in FY19.
The month of June saw easiness of lockdown measures which led to the reopening of businesses, resulting in an increase in demand for goods and services.
This increase in inflation was primarily attributed to the Food Index which increased by 2.1% MoM, wherein the major commodities which witnessed an increase in prices include wheat, eggs, tomatoes, vegetables, and spices.
On the other hand, a reduction in energy prices by Rs 7 per liter, and a decline in perishable food items pushed headline inflation lower.
However, the upsurge in the food index outweighed the benefit from a 1.1% drop in the transport index. Moreover, the rise in transport services by 7.5% MoM also diluted the impact of lower petroleum prices, as per research note by Ismail Iqbal Securities.
Apart from transportation index, Housing rent, Water, Electricity, Gas & other fuels which weighs 23.63% in CPI also kept the inflation restrained in June as it shrank by 0.16% MoM, mainly on an account of a 5.46% reduction in prices of Liquefied Hydrocarbons i.e. Kerosene oil.
In FY20, the major contributor to increase in annual inflation rate was the cost of food whereas the transportation index provided huge support in suppressing the inflation numbers on the back of lower oil prices.
Going forward, market analysts see that inflationary pressure will increase in the upcoming month due to several reasons which include; hike in gas & petrol prices, demand and supply pressure on major food commodities especially the shocks due to locust attacks and quarterly review of house rent index.
The recent depreciation of PKR along with an increase in international oil price, and expected hike in gas and electricity tariffs would uplift the inflation in FY21. The government has projected 6.5% inflation in FY21 while the SBP has forecasted the inflation would remain in the range of 7-9% during FY21, another report by Aba Ali Habib revealed.
Keeping the current inflation trajectory into consideration, the research by Pearl Securities highlighted that State Bank of Pakistan believes that the benefit of keeping a positive real interest rate is not worth at this point as their prime focus is on higher GDP growth rate and employment level. There is the possibility that interest rates are near to bottoming-out, however, the report argued that there is still a little elbow room in 1HFY21 for SBP to ease policy rate by another 100 bps.
However, according to Ismail Iqbal’s research note, interest rates would remain stable in the near term.
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July 2, 2020: IFC, a member of the World Bank Group, is making an equity investment of up to PKR 500 million (about $3.2 million) in Pakistan Mortgage Refinance Company Limited (PMRC), to catalyze affordable mortgage financing to help to address a critical gap in affordable housing.
With almost half of Pakistan’s urban families living in substandard housing, and the number of people living in towns and cities expected to double between 2030 and 2040, Pakistan is facing a high demand for affordable housing. The current housing deficit in Pakistan stands at 10 million units and is expected to grow by 700,000 units per year. Despite the growing demand for housing, Pakistan’s level of mortgage lending – 0.3 percent – which is significantly far lower than South Asia’s average of 3.4 percent.
IFC’s support to PMRC will help increase the overall availability of mortgage financing for homeowners. At present, the sector’s growth is hindered by an acute absence of long-term, fixed rate funding. This investment will allow primary mortgage lenders (PMLs) to offer new mortgages, with a focus on the frontier and under-served regions such as Khyber Pakhtunkhwa (KPK), Balochistan, and Federally Administered Tribal Areas (FATA) and is expected to serve as a model for the future.
“I would like to thank IFC for their support and investment in PMRC. IFC’s support is timely, especially with the economic slowdown further exacerbated by the COVID-19 pandemic. IFC’s presence as a shareholder will inspire investor confidence in PMRC’s potential to support the growth of mortgage financing in Pakistan,” said Mudassir H. Khan, PMRCL Managing Director & CEO. ” IFC’s extensive global knowledge and expertise from establishing mortgage refinance companies in other emerging markets will help guide the company’s business strategy.”
Through PMRC, IFC will help deepen the local debt capital markets and standardize underwriting for mortgage lending, which is essential for the market to grow.
“This marks IFC’s first investment in Pakistan’s housing sector and comes after extensive collaboration with the government of Pakistan and the World Bank to help meet the country’s critical need for affordable housing,” said Nadeem A. Siddiqui, IFC Senior Country Manager for Pakistan. “It will help open up financing for affordable housing for Pakistan’s middle and lower-income families and can contribute to stimulating the economy at a time when growth has been severely impacted. . It will also help spur private sector participation in mortgage finance, effectively creating a new market and model to promote competitiveness, growth and inclusion in the country.”
IFC’s investment comprises an equity investment in common shares of PMRC for a maximum stake of about 12 percent in the company. Half of IFC’s investment will be supported by the International Development Association’s Private Sector Window (IDA PSW) Blended Finance Facility, which will help to focus growing mortgage refinanced loans in the underserved provinces of KPK, FATA and Balochistan. This will be IFC’s first co-investment supported by the IDA-PSW in Pakistan.
The project follows extensive collaboration between the World Bank and IFC working with the government of Pakistan and the banking regulator, the State Bank of Pakistan on developing an end to end solution – from demand to supply – to develop the underdeveloped housing sector in Pakistan. IFC helped set up and operationalize PMRC and develop its business plan through which the company was able to mobilize its current private sector investors. This project complements the World Bank’s up to $145 million Pakistan Housing Finance project, which included both financial and technical support to PMRC and capacity building for the government for regulatory reforms of the housing market.
July 02, 2020: In June, global food commodity prices rose for the first time since the beginning of the year driven by a rebound in vegetable oils, sugar and dairy quotations. However, in the cereals and meat markets, most prices remained under downward pressure amid market uncertainties posed by the COVID-19 pandemic.
The FAO Food Price Index, which tracks international prices of the most traded food commodities, averaged 93.2 points in June, some 2.4 percent higher than the previous month.
Effective from July 2020, the price coverage of the Food Price Index has been expanded and its base period revised from 2002- 2004 to 2014-2016. For more details on this revision, see the feature article published in the June 2020 issue of the FAO Food Outlook. A November 2013 article contains technical background on the previous construction of the Index.
The FAO Vegetable Oil Price Index gained 11.3 percent in June, after declining for four consecutive months. The rebound mainly reflects a sharp rise in palm oil prices due to recovering global import demand, following the easing of COVID-19 related lockdowns in a number of countries, and concerns over possible production setbacks amid prolonged migrant labour shortages. Price quotations of soy, sunflower and rapeseed oils also went up.
The FAO Sugar Price Index climbed 10.6 percent in June from the previous month. The surge in crude oil prices provided strong support to sugar markets, encouraging Brazil's sugar mills to use more sugarcane supplies to produce ethanol instead of sugar, thereby affecting sugar export availabilities and prices.
The FAO Dairy Price Index rose by 4.0 percent from May, marking the first increase after four months of successive declines. Renewed import demand for spot supplies, especially from the Middle East and East Asia, coupled with seasonally declining supplies in Europe and limited availability of uncommitted supplies in Oceania, underpinned the recent price increases.
The FAO Cereal Price Index declined 0.6 percent from May. Downward pressure on wheat prices in June was in part due to new harvests in the northern hemisphere and improved production prospects in a number of major exporting countries, including the Black Sea region.
The FAO Meat Price Index fell 0.6 percent from May, averaging 6.0 percent below its June 2019 value. Bovine meat and poultry price quotations fell, largely due to increased export availabilities in major producing regions, whereas pig meat prices registered a small increase, mostly in Europe, on the expectation of the further easing of COVID-19 market restrictions.
Record global cereal production to boost stocks
World cereal production is poised to reach a new record level of 2 790 million tonnes in 2020 - up 9.3 million tonnes from the May forecast - surpassing the record-high registered in 2019 by as much as 3.0 percent, according to FAO's Cereal Supply and Demand Brief, also released today.
Wheat production forecasts have been raised for India and the Russian Federation, more than offsetting a cutback to the EU and the UK expected outputs.
The forecast of world coarse grains production in 2020 has also been revised up to 1 519 million tonnes, up 5.7 million tonnes from the previous month, reflecting expectations of larger outputs of barley in Australia, the EU and Turkey.
FAO's global rice production forecast for 2020 is now pegged at 509.2 million tonnes, 400 000 tonnes above June's figure, primarily reflecting improved prospects for South American countries, where conducive weather raised yield expectations to all-time-highs.
World cereal utilization in the year ahead is forecast to rise to 2 735 million tonnes - 1.6 percent up from the previous month's forecast, mostly driven by an upturn in feed and industrial uses of coarse grains compared to earlier expectations. World rice utilization is also predicted to reach a fresh peak of 510.4 million tonnes in 2020/21, 1.6 percent up from June, based on expanding food use.
Reflecting new production and consumption forecasts, FAO now expects world cereal stocks by the end of seasons in 2021 to reach 929 million tonnes, representing a robust year-on-year expansion of 6.0 percent. This would drive the global cereal stock-to-use ratio in 2020/21 to a twenty-year high of 33.0 percent, highlighting the comfortable global supply prospects in the new season.