USD/PKR: Rupee Finishes Modestly Lower after Inflation Slides

On the foreign exchange market, Pakistani Rupee closed slightly lower against the US dollar settling at 154.70 on the Friday close. The State Bank of Pakistan (SBP) reported that in the open market Rupee’s value fluctuated between Rs 154.6 and Rs 155.2 respectively.

In other new, Pakistan’s annual rate of inflation slides in December to 12.63% versus 12.67% previous reading. Despite the marginal drop in the inflation reading Pakistan’s inflation remains close to a 9-year high. The elevated level of inflation reading can negatively impact the value of the domestic currency PKR, which in 2019 was mostly supported by the central bank indirect intervention.

The large foreign investment inflow into the local equity market and debt market supported PKR rate against the greenback in the past year. Pakistan Bureau of Statistics (PBS) data revealed that inflation as measured through the consumer price index (CPI) fell in December due to lower food prices. At the same time, the Wholesale Prices Index annual rate increased to 12.4% compared to 11.8% previous reading.

During early Asia trading hours, the USD/PKR exchange rate was seen stabilizing at 154.95.

Elsewhere, the first day of 2020 has brought into effect the China-Pakistan free trade agreement (FTA) protocol, which is expected to diminish the bilateral trade imbalances between the world’s second largest economy and South Asia’s biggest economy. Under the new protocol both countries need to impose no tariffs on 75% of taxable items.

The benchmark equity index Karachi Stock Exchange KSE-100 Index closed modestly down -0.37% at 42,323 on Friday, and was seen trading on Monday morning Pakistan trading hours at 41,461 down -2.04%. Year-to-date the Pakistan stock exchange market is modestly up at 2.24%.

The Pakistan 10-year government bond yield gaped higher and closed at 11.274 versus 11.024 previous closing rates.

On the other hand, the dollar index, which gauges the greenback’s strength against a basket of major currencies, settled at 96.90 on Friday. Currency traders are eyeing the Non Farm Payrolls (NFP) for further clues on the dollar direction, which is scheduled to be released by the end of the week.

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