PKR Set To Weaken?

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PKR Set To Weaken?

The Pakistani rupee (PKR) is predicted to trade weaker against the US dollar in the week ahead, due to pressure from oil import, according to local market analysts.

It is speculated that accelerating economic activity will in turn lead to a rise in demand for dollars for the purchase of energy, equipment and machinery.

Price Pressures

Although range-bound instruments rose slightly on the State Bank of Pakistan (SBP) making its latest monetary policy announcement, they soon fell away when it was clear there would be no interest rate change, and that was followed by increased dollar buying.

Last week the SBP chose to maintain interest rates at 7% and alerted the markets to the prospect that interest rates would stay stable for the near-term.

That is likely to be interpreted by the markets as a period running until May and the Ramadhan build-up when inflationary pressures tend to grow.

Pressure on the currency may also be due to the usual round of payments and adjustments associated with the new year, in which outflows typically exceed inflows.

Policy

At a post-monetary policy meeting on Friday, the SBP Governor, Dr Reza Baqir, declared that the current flexible system of exchange rate offered an effective means to absorb general external shocks, during the coronavirus pandemic.

The country’s exchange rate has not suffered a big hit due to the pandemic, bucking a global trend.

The general flight of capital to safe-haven assets has seen a depreciation of currency in emerging economies of up to 21%. But the PKR has only seen a 3.8% drop against the US dollar, during the period January 2020 to January 2021.

Some market analysts believe the impact of rising oil prices will be visible in import figures over the next month.

But it is also estimated that the current account balance is likely to remain roughly the same at $1.5 billion or between 0.5% and 1% of GDP. The country’s current account showed a deficit of $662 million during the month of December following a $513 million surplus of in November.