Currency Evaluation in the Light of Demand and Supply

Sun Mar 24 2024
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Shahzada Ahsan Ashraf

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Quite recently, there has been many positive and upbeat news about Pakistan economy. IMF and World Bank gave approval of their loans. Rupee-Dollar value remained strong, and stock market also performed better. A recent overview is quite encouraging. Some investment decisions came in the market. SBP stayed the discount rate unchanged. International scenario of currency was also optimistic. Followings are brief discussions.


Financing to support two projects – World Bank Approvals

World Bank has approved $149.7 million in financing for Pakistan. The Digital Economy Enhancement Project ($78 million) would fund the expansion of digitally enabled public services delivery for masses and firms.

The second Additional Financing for the Sindh Barrages Improvement Project ($71.7 million) would fund improved resilience to floods and improvements in the reliability, safety, and management of the three Sindh barrages.


Rupee Outlook after June

The term “Perfect 10” was initially coined in the gymnastics arena where a player flawlessly executes complex & breath-taking routines. The very last week would be summed as a Perfect 10 for the rupee, as everything went in its favor.

Among the key developments were the,

  1. A staff level agreement was reached with the IMF for the 3rd review of about $1.1bn.
  2. IMF & the government, both, were excited to initiate a new program EFF for a 2-to-3 year period. The number being whispered is around $8bn.
  3. Current Account clocked in a surplus of $128 mln, materially higher than market expectations.
  4. Due to current account surplus, the economic team lowered its annual CAD (current account deficit) from $6bn to $2bn and projected foreign financing gap of $11bn versus earlier estimates of $17.6bn
  5. REER (real effective exchange rate) for Feb, while appreciating to 102.2, was much less than market expectations of around 105.
  6. FDI turned positive (a positive sign) and inflow in Roshan Digital Account also increased.
  7. Country’s Forex Reserves enhanced by $239mln.
  8. SPI eased for the first time in 18 weeks to below 30%.
  9. Pakistan’s sovereign bonds rallied (better) on news of the successful IMF review, that showed a better performance.
  10. Pakistan is also all set to offer $300mn in Panda bonds.


Currency Outlook

This recent duration looks upbeat, as with all the positives news above, it should be surprising that Rupee did not get strengthen more, but market traders pointed out that if SBP was not mopping up liquidity (buy dollars) USDPKR would have fallen to even below 275/$ for sure.

While most dealers and traders were able to sell their exports in the 1–2 month period, we are of the point of view that they might now sell around 50% of their exports in the 3-month tenor also. This would give them a Rs 10 kicker to their proceeds with a little overall risk.

Chane in Rupee after June

While the experts see Pak Rupee to stay range bound till June end, the new fiscal may put the local currency slightly stay under pressure, for these following causes.

  1. June-end is typically a month of heavy outflows than inflows.
  2. After gaining some stability, the government of Pakistan (& the IMF) would want to boost growth for which imports would have to expand, enhancing demand for dollars.
  3. By end-June, we might expect REER to be around 110 & therefore some depreciation of the Rupee would take place.

Although, there would be some pressure on rupee, experts expect Pak Rupee to trade around the 275-285/$ for the Jul-Sep quarter. The wild card in this could be Oil prices.

Some Significant Central Bank Decisions

  1. Fed maintains rates & expects 3 rate cuts this year. Some astute analysts are forecasting that Fed may not be able to announce even one rate cut this year due to rigid wholesale/consumer price inflation
  2. Turkey’s central bank stuns the market players with 500-points rate hike announcement to 50%.
  3. The Bank of Japan (BOJ) also concluded the eight years of negative interest rates span.
  4. However, England & Russia kept their discount rates unaffected.

Bank Alfalah

Another good news for the market is that Bank Alfalah has pumped Rs 1.2 billion into its brokerage subsidiary.

Bank Alfalah Limited, one of Pakistan’s prominent commercial banks, has declared an investment of Rs 1.2 billion in its brokerage subsidiary, Alfalah CLSA Securities (Private) Limited.

This new brokerage house is a sort of partnership between the Abu Dhabi Group-owned Bank Alfalah and CLSA Limited, which is another brokerage investment house based in Thailand.

The company is presently operating a pure agency brokerage house offering equity brokerage, online trading, investment banking, foreign exchange services, commodities trading, research, money market, and advisory services.

 A Large Investment

The recent accounts of Alfalah CLSA reflect that the company dipped from making a profit of Rs. 7 million in 2022 to a loss of Rs. 1.1 billion in 2023. The onus of this weak performance lies on the brokerage house’s inability to limit operating expenses. Additionally, the company employed a short-term borrowing facility to enhance its exposure margin, leading to a huge jump in finance costs.


In order to improve the brokerage house, the bank has announced to invest a large amount. In fact, due to the loss earned this year, Alfalah CLSA saw its equity turn negative. In order to improve investor confidence and to make sure the brokerage house keeps operating, the bank would be improving its balance sheet.

 Global Commodities Trends

US crude little changed to $81.06/barrel

Brent up 0.40 to $85.17/barrel

Cotton falls by $1.45 to $97/pound

Gold price up by $14 to $2169/ounce

Coal price up 10 cents to $98.5/ton


Shahzada Ahsan Ashraf

The writer is a Former Chairman and CEO of PIA. Former Federal Minister for Industries and Production.

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