After strengthening against the US Dollar for 5 consecutive weeks, the Pakistani Rupee is heading lower on Monday. The Rupee gained 0.7% versus the greenback last week, hitting a 7-week high of 156.20, before settling on Friday at 159.36.
At 10:15 UTC, USD/PKR is trading +0.4% at 160.40. This is towards the upper end of the daily traded range of 159.12 – 160.90.
SBP Cuts Rates To 8%
The Pakistani Rupee strengthened on Friday after the State Bank of Pakistan cut interest rates by 100 basis points to 8%, this was in line with analysts’ expectations. This was the third time that the central bank had cut interest rates in three months in order to help the economy recover from the coronavirus impact.
A statement released by the SBP said that it reflected the monetary policy committee’s view that the inflation outlook had improved. Inflation has eased thanks to falling oil prices and reduced demand for good amid lockdown bringing prices lower. The central bank advised that they saw inflation falling towards the lower end of the previously announced range of 11% -12% this fiscal year. The SBP expects inflation to fall to 7% – 9% in the coming fiscal year.
A looser monetary policy is expected to provide support to households and businesses to help cushion the blow from the economic disruption that covid-19 is causing.
Analysts expect a looser monetary policy and low inflation to help the Pakistani economy recover by 2% – 3% next fiscal year, compared to the -0.5% – 1.5% contraction forecast in the current fiscal year, ending June 30th 2020.
Fed Powell’s Warning & Chines Trade Tensions
The US Dollar is advancing on Monday as investors weigh up rising US – Sino tensions and a stark warning from Federal Reserve Chairman Jerome Powell.
Jerome Powell warned that the economic recovery in the US from the coronavirus outbreak could be drawn out towards the end of the next year. He said that unemployment could rise to 25% and economic output could contract by -30% in the second quarter. However, he also said that he believes that the US will avoid a Great Depression similar to that experienced in the 1930’s.
With no high impacting US economic data due for release today, investors will monitor US – Sino relations as tensions rise after President Trump restricted Huawei’s access to US handsets.