Improving currency: impact on economy & sectors
The PkR fortune has taken a U-turn in recent times as it was the best performing Asian currency for the week ended Mar 07'14. During the week, the PkR appreciated by 1.7% against the US$, while in today's session it has broken the big figure of PkR101 to trade around PkR100.90.
Copyright Business Recorder, 2014
Overall, the PkR has recovered by 7% from its all-time low of PkR110.1. Though we continue to pursue clarity on the changing PkR dynamics, our initial assessment suggests that improved forex reserves (up US $1.1bn in Feb'14) is reflecting positively on PkR - US$ parity. Improved flows from bi/multilateral sources (including CSF), normalisation of trade cycle and higher remittances flow are likely to be driving factors for improved reserves. In today's Vantage Point, we assess the impact of improved PkR - US$ parity on the country's economy and some of the major listed sector.
IMPACT ON THE ECONOMY The improved PkR - US$ parity is likely to moderate the future inflation expectation (Shajar FY14 average CPI expectation of 9%), which could potentially be a major swing factor in the coming few monetary policy statements (our base case stance of 'Status Quo' on the DR till Jun'14). The improved PkR - US$ is also likely to reflect positively on Pakistan's debt profile with external debt account for xx% of the total debt. On the flip side, the improved PkR - US$ parity may adversely affect the country's export competitiveness. Pakistan's exports are already facing tough competition from other regional players like India and Bangladesh.