Tag: FX market

  • JPMorgan warns of temporary PKR depreciation despite strong economic conditions

    JPMorgan warns of temporary PKR depreciation despite strong economic conditions

    Despite a robust Balance of Payments (BoP) position, Pakistan may experience a depreciation of the Pakistani rupee (PKR) in the near term due to the finalisation of outstanding dividend payments, according to a recent report from JPMorgan analysts.

    The report suggests that while the PKR is not perceived as overly expensive, analysts are anticipating more favourable foreign exchange (FX) entry points.

    They also noted that although the International Monetary Fund (IMF) has declared the removal of all FX restrictions, there could still be informal barriers affecting the repatriation of dividends.

    Should these informal restrictions be fully addressed at the commencement of the Extended Fund Facility (EFF), it might lead to a moderate increase in the USD/PKR exchange rate over the coming months. However, analysts expect any such increase to be short-lived due to positive BoP conditions.

    The current environment is seen as a promising opportunity for bullish trades in T-bills and bonds, especially with the anticipated large-scale interest rate cuts by the State Bank of Pakistan (SBP).

    Since the beginning of the year, the PKR’s Nominal Effective Exchange Rate (NEER) has strengthened, reflecting improvements in the BoP, such as higher export revenues, stable remittance flows, and a gradual return of financial inflows.

    Although some concerns persist over foreign currency restrictions that might have artificially dampened FX volatility, the IMF’s latest report from May confirms the removal of remaining FX controls as of late January. This has resulted in a stable PKR with no significant premium in the informal or parallel market.

    Moreover, the import bill has increased only gradually, indicating limited pent-up demand. While the Real Effective Exchange Rate (REER) shows signs of potential overvaluation, it remains far from historical extremes and is expected to adjust downwards as inflation moderates.

    Overall, JPMorgan believes that any negative FX adjustments are likely to be minor, provided there is no significant worsening of the current account balance.

  • PM Shehbaz urges IMF to release stalled funds, assures compliance with conditions

    PM Shehbaz urges IMF to release stalled funds, assures compliance with conditions

    On Thursday, Prime Minister (PM) Shehbaz Sharif had a meeting with Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), where he urged the lender to release the stalled funds for Pakistan. He assured the IMF of Pakistan’s compliance with all the conditions set by the lender.

    The meeting took place during the Summit for a New Global Financial Pact held in Paris, emphasising Pakistan’s commitment to fulfilling its promises.

    During the meeting, the two leaders discussed the ongoing programmes and cooperation between Pakistan and the IMF. The prime minister briefed Georgieva on Pakistan’s economic outlook, highlighting the government’s efforts for economic growth and stability.

    He emphasised that all the necessary actions for the 9th review under the Extended Fund Facility (EFF) had been completed, and Pakistan was fully dedicated to meeting its obligations as agreed with the IMF.

    The prime minister expressed his hope for the timely release of the funds allocated under the EFF, as it would contribute to Pakistan’s ongoing efforts in economic stabilisation and provide relief to the people.

    Georgieva shared the IMF’s perspective on the ongoing review process and acknowledged the meeting as an opportunity to assess the progress made in that context.

    It is crucial to note that Pakistan’s currency reserves are currently sufficient to cover only one month’s worth of imports. The country had expected $1.1 billion of the funds to be released in November, but the IMF has imposed certain conditions before making further disbursements.

    With only one IMF board review remaining before the end of the $6.5 billion EFF programme, Pakistan is expected to present a budget aligned with the programme objectives, restore proper functioning of the foreign exchange market, and bridge the $6 billion gap before the board review.