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SBP to issue 2 Year PIB as it sets...

October 31, 2020 (MLN): The State Bank of Pakistan (SBP) announced the auction calendar for November 2020 to January 2021 in which it plans to raise Rs.3.905 trillion through the sale of Government Securities.

The amount maturing during the next three months is Rs.2.912 trillion showing a net borrowing requirement of Rs.993 billion by the government.

The SBP plans to auction Rs.2.40 trillion in short term Market Treasury Bills (MTB), Rs.375 billion in Fixed Rate Pakistan Investment Bonds (PIBs), Rs.980 billion in Floating Rate PIBs (PIBFRR), Rs.105 billion in Variable Rental Rate GOP Ijara Sukuk and Rs.45 billion in Fixed Rental Rate GOP Ijara Sukuk.

The 10 Year Fixed Rate PIB to be issued from December 2020 will be a fresh issue with its coupon revised down from 10% to 8%.

The Floating rate coupon PIBs target amount has been divided evenly between semi-annual and Quarterly Coupon bonds for 3, 5 and 10 years at Rs.420 billion with an addition Rs.140 billion being set as the target for a new 2 year quarterly coupon payment floating rate PIB. The coupon rate for the 2 year PIB is set at 7.158% and will be reset fortnightly.

The quarterly coupon PIBs will be the reopening of Oct 22, 2020 issue with the coupon rate of 7.1178% for 3, 5 and 10 years, while the semi-annual bonds will be a fresh issue with the coupon rate set at 7.20% for 3, 5 and 10 years.

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CPI Preview: Steep upturn in food prices to awaken...

October 31, 2020 (MLN): Steep increase in food prices is likely to awaken wave of inflationary pressures, as the headline inflation for the month of October 2020 is expected to settle around 8.8%- 9.4% with an average estimate of 9.08% YoY compared to 9.04%YoY in the last month and 11.04%YoY in October 2019, as per the projections put forth by various brokerage houses.

This would bring 4mFY21 average inflation to 8.9% as against 10.32% in the corresponding period last year. To note, this is within the range of SBP’s inflation forecast of 7-9% for FY21.

On monthly basis, the inflation is expected to move up with an average estimate of 1.85% MoM compared to the inflation of 1.54% MoM in September 2020.

The food inflation which has been in double digit since August 2019, is the major factor in stimulating October’s inflation. While a strong incitement will also be provided by quarterly house rent adjustment in Oct’20. In addition, the lag impact of PKR depreciation against dollar is also likely to reflect in inflation pace.

The impact of rise in food prices is going to come broadly from both perishables and non-perishables, where chicken, wheat, onion, and tomatoes would be the major contributors. Taking cues from weekly SPI data, under food index which inflated by around 16% YoY during October’20, the prices of fresh milk, wheat, meat and spices surged by 13% YoY, 23% YoY, 11.6% YoY and 40% YoY respectively. Similarly, sugar and tomatoes’ prices also increased by 32.7% YoY and 76.7% YoY respectively. The massive upturn is attributable to shortages of wheat, sugar, tomatoes and other items due to supply disruptions instigated by recent heavy monsoon rains and floods, and lower crops production.

According to the report by Shajar Capital, the food index has surged rapidly since the start of the pandemic as the utility food prices have surged to multi years high, where Flour per bag and Sugar prices have soared to Rs 1,043 per 20Kg and Rs 99 per Kg respectively in the month of Oct’20, despite the permission of import of Wheat and Sugar from international markets at lower prices.

Some minor respite is likely to come on the back of trivial adjustment made in administrated fuel prices amid benign international oil price and strong PKR. As per the report by BIPL Securities, monthly fuel adjustment was also favorably adjusted which will help contain the headline inflation somewhat. However, another impetus from a revision in house rent index which is expected to see a monthly inflation of around 0.4% will erode the favorable high base effect.

On the other hand, transportation index is expected to decline by 1.53% YoY, mainly due to 33% YoY decline in Arab Light prices, 8% YoY decline in petrol prices and appreciation of PKR against dollar by 4.51% YoY during the month under review compared to Oct’19 prices.

Since Rupee has shown potency against USD, this, along with weak oil prices in international market and promising external account position on the back of improved Current account balance, higher remittances and comfortable Real Effective Exchange Rate (REER), are likely to keep inflation in check going forward.

However, the food inflation will remain the major concern as the lower sowing and shortage of food supply would keep food prices on higher side. In addition, further hike in electricity prices in conjunction with the surge in gas meter rent by the OGRA will keep inflation index elevated.

From a monetary vantage, with IMF program currently dormant, SBP would maintain the current policy rate at 7% in upcoming MPC meeting in order to stimulate economy. However, as the inflationary pressure builds and IMF program is revived, the SBP may be compelled to revive the real interest rate corridor once again, said the report by BIPL Securities.

CPI Projections for October 2020



Pearl Securities Ltd






Arif Habib Limited



Darson Securities



BIPL Securities



Abbasi and Company Ltd



Taurus Securities



Aba Ali Habib Securities



Summit Capital



Al Habib Capital Markets



Ismail Iqbal Securities



Shajar Capital



Foundation Securities



Next Capital



Intermarket Securities




9.4 - 8.8

2.13 - 1.59










Expected Average Inflation in 4MFY21



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PKR appreciation – Capitalizing on a global currency’s downturn?

October 30, 2020 (MLN): Pakistan has been riding high on its recent economic successes, be it an improvement in remittances, or a rise in the Current Account Surplus. Despite a prevalent pandemic that still isn’t ready to bid adieu to the country yet, Pakistan has managed to perform exceptionally well as compared to not only emerging economies but also some of the highly advanced nations around the globe.

All of these positive economic factors have allegedly led to an appreciation of the Pakistani Rupee (PKR) by almost 4% against the US Dollar during the Financial Year 2021. In other words, the PKR has risen from 168 per USD to around 160.25 per USD, which by every means is a significant achievement for a country like Pakistan.

Taking it as an opportunity to showcase their relentless efforts and talent to bring the economy back on track, various renowned political personalities credited the Government for taking the right steps at the right time. However, the question that has been bugging many is that should the Government of Pakistan take the entire credit for the appreciation of PKR?

While there is no doubt that their policies and timely actions helped in improving several economic factors, but to say that PKR benefitted from only these factors is slightly fallacious, to say the least. What many have failed to notice or are conveniently ignoring is that the US Dollar itself has depreciated against all the major currencies, thereby naturally helping PKR appreciate.

In fact, the USD Index has fallen by 10% since the imposition of lockdown in March, and by 5% during the ongoing fiscal year. This point is further validated by the Pakistan REER, which suggests that the local currency appreciated by only 2% FYTD against its trading partners.  

The major forces behind the depreciation of the safe-haven seem to be the expectation of stable rates over the next few years as indicated by the Fed, as well as significant quantitative easing. Besides, several countries are now making lesser and lesser use of USD for trading purposes. This comes as a setback to particularly those who see USD as a mechanism to make short term yet high returns.   

Coming to the initial point, to say the PKR has appreciated on its own merit is nothing short of being a bit disingenuous. An example of this would be the change in LSMI growth, which is one of the major economic indicators. As shown in the graph below, the LSMI went up by 19.14% and 20.09% in May and June, whereas PKR declined by 1.79% and 2.94% against USD, respectively. July was the month where both LSMI and PKR followed the same trajectory, before parting ways in August again.

Similarly, if we compare the performance of PKR against the Current Account Balance from March till September, we will notice that both of them are idiosyncratic in all months except March and April. This again goes on to show that while PKR is significantly influenced by the trade performance, it is not entirely dependent on it.

Despite this, several ministers have gone on to credit the incumbent government for this unearned achievement on various platforms, and to be fair to them, it's difficult to gauge whether they are fooling us or being fooled themselves.

Keeping these pointers into consideration, the biggest concern now remains is that whether the local currency would be able to sustain its victory in the coming periods or fall flat on its face once the USD starts gaining prominence again.

The answer to that question is subjective. Nobody knows where PKR is headed not just because of the market-based mechanism in place but also the fact that the rupee is somewhat sentiment-driven. Business Recorder, in one of its research reports, has rightly pointed out how the rupee in March depreciated more than it should have because of the negative sentimentalities in place, and how it is appreciating more than it should because of the bullish sentiments that have taken over.

The Current Account has been in surplus for four out of the past five months, and there have been consistent inflows from multilateral channels, which has made investors and traders hopeful about the direction that the currency would take. This hope and positive outlook regarding PKR is itself the very reason why the currency is doing great and likely to perform even better.

Not just the economic factors, a number of initiatives taken by the State Bank and Government, which includes the launch of Roshan Digital Account, are expected to play a huge role in the performance of PKR.  Roshan Digital Account, whose aim is to help and encourage Non-Resident Pakistanis to invest in capital markets, is already getting an overwhelming response with more than 341 stock investment accounts opened.  

However, merely considering sentiments to predict the trajectory of PKR would be a major understatement of the currency itself. The SBP would not allow too much volatility in the currency market even if it takes PKR to new heights, as the same volatility will come to bite the central bank in the face when the sentiments take a u-turn. It is also important to keep in mind that the current account surplus may take a slight hit owing to the lower interest rates and rising demand, as it would increase the cost of imports.

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Asian markets drop again as election jitters set in

October 30, 2020: Asian markets suffered further losses Friday as investors were spooked by soaring virus cases in Europe and the United States that have forced fresh lockdowns, while uncertainty ahead of next week's US election was also dampening sentiment.

Regional traders brushed off a healthy rebound on Wall Street and forecast-beating economic growth data out of Washington with analysts warning the fresh infection spikes and failure to pass a new stimulus would likely knock the recovery off track.

Equities have had a torrid week as governments are forced to act to contain a second wave of disease in the northern hemisphere, with France essentially shutting down for November, Germany putting in place tough measures and several other countries in danger of having to follow suit.

European Central Bank boss Christine Lagarde noted the eurozone was facing a tough few months, saying Thursday that the economy was "losing momentum more rapidly than expected" after a partial rebound in the summer, adding that risks were "clearly tilted to the downside".

However, on a positive note she hinted that the bank could unveil fresh measures to keep credit flowing.

Eyes are now on Tuesday's presidential election, with expectations Joe Biden will win the White House, while Democrats could sweep both houses of Congress, which observers say could see the passage of a huge new stimulus.

However, despite Biden being well ahead of Donald Trump in national and battleground polls, traders remain nervous that the president could contest any tight result, having spent much of the campaign warning of mail-in voter fraud.

"There is going to be more volatility ahead of the election," Quincy Krosby, of Prudential Financial, told Bloomberg TV.

"Over the weekend folks are going to be focused on (key battleground state) Pennsylvania to see whether or not Biden is gaining there. The concern is if he gains a little bit, that may be one where you could actually look to a contested election," she added.

- US economy's false dawn? -

Trump on Thursday claimed a triumph with data showing the world's top economy expanded a record 33.1 percent in the third quarter, warning in a tweet that Biden would ruin the recovery.

However, analysts pointed out that the figure came after a 31.4 percent drop in the previous three months and was driven by consumer spending supported by a massive $3 trillion in government aid, much of which has since expired.

"Even with the sharp rebound seen in the third quarter, the level of GDP remains 3.5 percent below pre-pandemic levels with a large degree of spare capacity remaining," said National Australia Bank's Tapas Strickland.

"Higher-frequency data also suggests that growth has slowed over recent months, not helped by the resurgence of Covid-19."

Separate figures showed new applications for jobless benefits fell last week but remained at a mind-boggling 751,000.

Asian markets extended the week's losses, with tech firms weighed by warnings from US giants including Apple, Amazon and Facebook that the outlook was murky owing to the impact of the coronavirus.

Tokyo was down 0.8 percent and Seoul shed one percent, while Hong Kong, Shanghai, Taipei, Sydney, Singapore and Wellington also suffered losses.

However, OANDA's Edward Moya offered a note of hope, saying that while the virus is resurgent, "the world is better prepared to (deal with) Covid-19 over the winter months and hopes are still high that treatments and vaccines will get approvals before year end".

Oil prices climbed in early trade following another hefty loss Thursday that sent the commodity to four-month lows, though observers warned that the imposition of new lockdowns and containment measures would keep gains limited and likely spark further selling.

- Key figures around 0230 GMT -

  • Tokyo - Nikkei 225: DOWN 0.8 percent at 23,146.37 (break)
  • Hong Kong - Hang Seng: DOWN 0.4 percent at 24,498.27
  • Shanghai - Composite: DOWN 0.1 percent at 3,271.15
  • Euro/dollar: UP at $1.1688 from $1.1672 at 2100 GMT
  • Dollar/yen: DOWN 104.46 yen from 104.60 yen
  • Pound/dollar: UP at $1.2936 from $1.2926
  • Euro/pound: UP at 90.35 pence from 90.34 pence
  • West Texas Intermediate: UP 1.0 percent at $36.54 per barrel
  • Brent North Sea crude: UP 1.2 percent at $38.10 per barrel
  • New York - Dow: UP 0.5 percent at 26,659.11 (close)
  • London - FTSE 100: FLAT at 5,581.75 (close)


Lower oil prices and PKR appreciation eased out inflationary...

October 29, 2020 (MLN): The Monthly Economic Indicator (MEI), a useful indicator of ongoing overall economic activity for policy purposes, has shown persistent growth in September, in continuation with the trend observed in the previous two months based on available data. It follows that economic growth in the first quarter of FY 2020-21 has exhibited persistent recovery.

In absence of any adverse future shocks, the economy is on its way not only to rebound from the pandemic-related crises but also to record a reasonable growth rate for the full fiscal year.

The Finance Ministry in its monthly “Economic Update and Outlook” for October 2020, revealed that some of the data underlying the September MEI are still provisional and may be revised next month.

It is pertinent to mention that MEI is based on combining monthly data of indicators that are proven to be correlated with GDP at constant prices.

The composite leading indicator (CLI) compiled by OECD, shows that Pakistan’s most important export markets have fully recovered from the pandemic-led recession in the UK and China only. In the US and the European Area, the CLI remained below pre-pandemic levels. The newly imposed precautionary measures in some of these countries may slow down their near-term economic recovery.

Under the Government’s unprecedented measures to mitigate the impact of the pandemic and to revive economic activity, the fiscal sector has witnessed a substantial improvement during the first two months of FY2021 as it reduced to Rs 415 billion i.e. 0.9 percent of GDP against 1.2 percent last year on an account of 71% increase in non-tax revenues during July-August, FY2021. While FBR tax collection surpassed its target set by Rs 34.1 billion for Q1, FY2021.  Similarly, the primary balance posted a surplus of Rs 69 billion (0.2 percent of GDP) in the first two months of the current fiscal year against a deficit of Rs 55 billion (-0.1 percent of GDP).

Keeping in view the encouraging growth in FBR tax revenue collection and a significant rise in non-tax revenues, the Finance Ministry expects that both will maintain its pace in the second quarter as well. Thus, it is expected that the fiscal deficit will remain as targeted for Q2 FY2021 as well, however, the risk of high public spending due to COVID-19 may build pressure on expenditure in Q2 FY2021.

The first two months of FY2021 reflected a revival of economic activities in the country as LSM grew by 3.7 percent (-5.9 percent during July-August FY 2020). The positive growth in LSM is coherent with the further economic expansion in the main trading partners, and with the deceleration of the strength of that expansion.

On the external front, the Current Account posted a surplus of $792 million (1.2 percent of GDP) during Q1 FY2021 against a deficit of $1492 million last year (2.3 percent of GDP). In October, following the rebound in economic growth in Pakistan, imports may re-join their level recorded last fiscal year. On the other hand, it may be expected that exports will still lag somewhat since economic activity in most of the trading partners has not yet fully recovered, the ministry highlighted.

During the first quarter of FY2021, remittances in USD were 31 percent higher than in the corresponding quarter of FY 2020. It is expected that the pattern will continue in October as well due to the policy measures that have positively affected the channels of remittance transfers. Further, remittances inflows are expected to remain higher than the trade deficit in goods and services.

Currently, inflation is one of the main challenges for the government. In Pakistan, most recently, CPI remained driven by higher food prices, while non-food inflation remained moderate. However, the government is taking all possible measures to control it. Together with measures that ensure sufficient supply of goods, especially food-related production, it is expected that inflation will remain under control whereas policy measures will contribute to better-functioning markets. In recent weeks, the international food prices have rebounded somewhat, whereas oil prices declined, and the PKR exchange rate slightly appreciated against the USD, thus easing out inflationary prospects.

Most importantly, although the domestic economic activity is expected to recover, still the risk of pandemic attack persists if the SoPs are not fully followed. Thus, Pakistan’s near-term economic prospects are promising subject to reducing uncertainty and restoring business confidence.

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