- Pakistani Rupee (PKR) declines as inflation drops to 8.2%
- SBP reserves to fall to single digits
- US Dollar broadly lower on safe haven outflow
- At 10:15 UTC, USD/PKR is trading +1.2% at 165.35
The Pakistani Rupee continues its descent versus the US Dollar on Tuesday. The Pakistan Rupee settled on Monday -0.7% lower at 163.62 following a report from the Pakistan central bank highlighting the damage to the economy that coronavirus is causing.
At 10:15 UTC, USD/PKR is trading +1.2% at 165.35. This is towards the upper end of the daily traded range of 163.00 – 166.00, a five-week high.
According to the Pakistan Bureau of Statistics (PBS), inflation in Pakistan eased for a fourth straight month in May, printing at 8.2%. This is the lowest reading for inflation in 11 months and down significantly from January’s 14.6%. The rate of decline has slowed as food inflation increased, partially offsetting falling fuel prices.
Last month the State Bank of Pakistan cut interest rates by an additional 1% to 8%. This is down considerably from the 13.25% interest rate that the central bank maintained across 9 months prior to the coronavirus crisis to attract hot foreign money (flows of money between countries to benefit from interest rates difference and / or changes in the anticipated rate.)
Adding to pressure on the Rupee has been dwindling reserves at the State Bank of Pakistan. Exports have declined considerably owing to the pandemic and the World Bank predicts that remittances will decline by 20% meaning that the SBP will struggle to keep reserves in double digits.
The US Dollar is trading lower versus its major peers, such as the Pound and the Euro as investors shun its safe haven properties in favour of riskier assets. The economic reopening across the globe means investors, which had moved into the US Dollar for its safe haven properties amid recession fears are now rotating out.
With no high impacting US data to attract investors’ attention, focus will fall on the civil unrest breaking out in cities across America. So far, the markets have shrugged off the increasingly violent protests, sparked off by the death of George Floyd whilst being arrested by police in Minneapolis. President Trump has threatened to bring in the military to take back control. An escalation in the situation could boost the safe haven US Dollar higher.
