Highlights
- PKR/USD parity - the major factors influencing PKR
- Interbank & open Market gaps providing speculating opportunities
- Is IMF program the only way out?
We have talked to several forex traders and got their feeler on the recent movement of Pak Rupee against US Dollar, where the former experienced a freefall against the later. In today's Value Seeker, we discuss the influencing factors behind the aforesaid downward velocity of PKR against USD.
PKR/USD parity - the major factors influencing PKR
PKR has been continuously heading downwards because of numerous economic and speculative reasons. The prime reason behind the massive fall in PKR is identified as the payments of IMF loans. These payments started from Jun-12 and PKR since the same period has shed its worth by alarming 4.7% till now. Moreover, poor law & order situation in the country coupled with energy crises can be classified as the reasons that are forcing foreign flows to diminish by hurting the country of its export front. Conversely, it has led to outflow that resultantly have impacted the PKR value in the negative way. This has inflated the transfer of money through grey channels. Furthermore, short term gain opportunities for individuals amid limited investment avenues in the country also played its due role and speculators grasped this opportunity with warm welcome.
Interbank & open Market gaps providing speculating opportunities
Looking through the historical trend, not only has PKR touched its all-time low against the greenback (over Rs99.75) in the open market, but also discount to interbank market has widened further to ~1%. The same situation was observed back in Jun-12 when open market-interbank discount stood at an average of 2.3%. SBP is expected to curb off speculation in the open market. With our discussions with different forex traders it came to our knowledge that the current upward trend is encouraging the investors to book their gains before they take new positions in the currency market. Therefore, Rs98.50/USD remains the resistance level for short term, while investors are said to take the new positions at Rs97.20/USD.
Is IMF program the only way out?
Although workers' remittances and Collation Support Funds (CSF) are supporting the USD inflows in the country, these avenues are not enough to support the government reserves. The reserves fell to their 40 month lowest level of USD13.4bn. The previous minimum level was realized at USD12.86bn during end of August, 2009 which was due to IMF payments coupled with financing of the oil import bill. In the short run CSF and energy support funds of USD700-800mn is likely to support the reserves, however, going forward the door of IMF looms at large as it seems to be the only way to support the reserves and in effect limiting the downward spiral that PKR has been stuck in against the greenback.
ValueSeeker 18-December-12
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