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PKR depreciates by 23 paisa at interbank trade

July 07, 2020 (MLN): Pakistani rupee (PKR) depreciated by 23 paisa against US Dollar (USD) in today's interbank session as the currency closed the day's trade at PKR 166.95 per USD, against yesterday's closing of PKR 166.72 per USD.

The rupee traded within a very narrow range of 65 paisa per USD showing an intraday high bid of 167.00 and an intraday Low offer of 166.55.

Within the Open Market, PKR was traded at 166.30/167.50 per USD.

Meanwhile, the currency lost 13 paisa to the Pound Sterling as the day's closing quote stood at PKR 208.33 per GBP, while the previous session closed at PKR 208.19 per GBP.

Similarly, PKR's value weakened by 13 paisa against EUR which closed at PKR 188.29 at the interbank today.

On another note, within the money market, the State Bank of Pakistan (SBP) conducted an Open Market Operation in which it injected Rs.117 billion for 3 days at 7.07 percent.

The overnight repo rate towards close of the session was 7.50/7.75 percent, whereas the 1 week rate was 7.05/7.10 percent.

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Inflow of $15 million in T-bills & PIBs has...

July 7, 2020 (MLN): Pakistan witnessed an inflow of $15.11 million by foreign investors via Special Convertible Rupee Account (SCRA) in government debt securities in first three days of FY21.

The total inflows in Treasury bills (T-Bills) during first three days of the ongoing month recorded at $10 million whereas, inflows in PIBs logged at $5 million. These investments in debt instrument had been injected by UK investors.

With regards to equity investment, inflows during the said period were recorded at $2.1 million while outflows stood at $10 million, bringing the total net inflow by overseas investors to clock in at $7.2 million in FY21 so far.

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PMEX Commodity Index ends at 4,459-mark

July 07, 2020: On Monday at Pakistan Mercantile Exchange Limited, PMEX Commodity Index closed at 4,459. The traded value of Metals, Energy and COTS/FX was recorded at PKR 9.637 billion and the number of lots traded was 12,419.

The major business was contributed by Gold amounting to PKR 6.052 billion, followed by NSDQ 100 (PKR 998.871 million), Currencies through COTS (PKR 563.140 million), Silver (PKR 495.422 million), Platinum (PKR 397.948 million), DJ (PKR 321.274 million), Copper (PKR 265.462 million), Natural Gas (PKR 258.787 million), Crude Oil (PKR 219.372 million) and SP500 (PKR 64.706 million).

In agriculture commodities, 8 lots of Cotton amounting to PKR 4.230 million, one lot of Wheat amounting to PKR 4.113 million and one lot of Corn amounting to PKR 2.974 million were traded.

Press Release

OMO Result: SBP Injects Rs.117.00 Billion for 3 Days

July 07, 2020 (MLN): The State Bank of Pakistan (SBP) conducted an Open Market Operation on Tuesday in which it injected Rs.117.00 Billion into the market for 3 Days.

Summary of OMO Result

TenorTypeOfferedAcceptedHigh - LowAcceptedOfferedAccepted
3DReverse Repo (Injection)148.000117.0007.12 - 7.057.0775
OMO Settlement: same day July 07, 2020
*Amount in Billions


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Oil’s collapse and COVID-19 might choke flow of remittances...

July 07, 2020 (MLN): The responsiveness of remittances to the international oil prices is a concern for Pakistan’s economy as workers’ remittance flows from GCC countries allow Pakistan to maintain foreign reserves, service debt, and finance capital flight.

Knowing the fact that Gulf sovereigns are mainly dependent on Oil revenues, therefore, higher oil prices instigate more investment and consequently economic growth.

The secret behind this window is their labour force which is mainly composed of foreigners from all over the globe. Due to large migrants in GCC countries, they are the largest remitting countries in terms of percentage of GDP.  

Pakistan, being the receiving country, is much dependent on the significant amount of these monetary flows from GCC countries. Workers’ remittances are the key source of foreign exchange earnings, making up nearly 89% of the secondary income balance during June-May FY20.

It is pertinent to mention that several studies have found out that Pakistan’s workers’ remittances are mainly used for consumption purposes, therefore, they have a nominal impact on investment.

If we start tracing back the Pakistan monetary inflows, we see that in times of Global Financial Crisis (GFC) 2008, instigated by Subprime mortgage crisis, there is no such decline in remittance despite the ending of the remarkable boom period of oil, toppling oil price of $147 a barrel in July 2008 to a low of $33 per barrel in February 2009.

One of the reasons is the most migrant Pakistani workers are employed in GCC countries who thankfully were not affected by this crisis as expatriates of the US, Europe and Canada were affected most. However, the illustration shows that the remittances received by Pakistan witnessed no such decline with the effects of an oil price shock given the fact that most migrant workers are employed in GCC countries.

Back in 2014-15, Brent oil prices declined sharply owing to a growing supply glut from a peak of US$115.06 per barrel in June 2014 to a low of US$28.55 a barrel in January 2016.

Beneath the surface, we see the dynamics of GCC countries started shifting rapidly as nationalist sentiments grew in that region due to economic slowdown on the back of a plunge in oil which resulted in a significant decline in the number of Pakistan’s migrant workers, shown in the graph below.

But surprisingly, remittances grew steadily in that period too owing to strong fiscal austerity. Saudi Arabia and other GCC countries could withstand low prices; they took advantage of this free-fall in order to get long term benefits than giving up market share.

Today, GCC countries face a double whammy in the form of COVID-19 pandemic and crashing oil prices, which would affect the Foreign direct investment, remittances, export of labour and grants received by Pakistan.

The main worry during coronavirus pandemic will be the volatility of remittances from the Gulf Countries as they are feeling the pinch of lower oil prices, which have slowed down real economic activites due to fiscal deficit looms, illustrating in the above graph. Moreover, the accommodation of the retuning workers due to massive layoffs at this unprecedented time is another challenge for the federal government.

Keeping in view the latest development, Pakistan will likely see a drop in remittances from the USA as well, the second-largest remitting country, as an exponential increase in virus cases in US, led to a rise in layoff and unemployment rate during coronavirus outbreak.

While facing macroeconomic challenges, one must not forget about the impact of remittances on the exchange rate. In literature, it has been found that substantial inflows of remittances appreciate the exchange rate of the recipient country and hurt the export sector through the so-called Dutch disease; the domestic currency appreciation makes exports more expensive and imports cheaper, affecting the country’s trade balance.

However, this evidence is harder to find in the case of Pakistan. The domestic currency, PKR continues to weaken against the dollar since March’20 in the wake of the economic slowdown caused by pandemic despite the significant volume of remittances, displayed in the graph below.

If remittances from GCC countries and the USA take a hit in the coming months on an account of coronavirus, it will cause in the decline of foreign exchange reserves. Conversely, the PKR will further depreciate against the dollar.

To stabilize output, some of the GCC sovereigns will likely preserve their fiscal and credit strength if a low oil price environment will likely to persist for long, according to the rating agency Moody’s. Further, some Gulf countries announced spending cuts in the form of overseas grants and aid payments.

Considering millions of Pakistanis employed in Gulf countries, there still exists inequality between the amount received and workers present when compared to the other South Asian countries. It is imperative to formulate a comprehensive policy to revitalize its existing workforce and make it more competitive in terms of working labour from other countries. The issue to lighten the burden of remittances requires great attention at the federal level. The procedural hurdles like high transfer cost even attached to a small amount of money must be removed to accelerate the influx of remittances through formal channels by bringing all relevant authorities on board.

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