- Pakistan Rupee (PKR) declines as SBP keep rates at 7%
- Inflation is expected to ease back to 7-9% target
- US Dollar (USD) trades lower versus major peers on safe haven flows amid vaccine optimism
- US manufacturing and services PMI expected to show slight slowing in activity
The US Dollar Pakistani Rupee (USD/PKR) exchange rate is advancing on Monday paring losses from the previous week. The pair slipped -0.6% across last week. At 10:30 UTC, USD/PKR trades +0.5% at 160.95 a level not seen since the beginning of November.
As was broadly expected, the State Bank of Pakistan has decided to keep monetary policy on hold, with the interest rate at 7%.
The central bank noted that since the last meeting in September, the economic recovery in Pakistan has gained gradual traction, in line with forecasts of just above 2% GDP in FY21.
The central bank also noted that news surrounding vaccine developments was encouraging, but it could be some time until the are broadly available. In the meantime, a second wave of covid prevents some risks.
Inflation has been higher than anticipated by the SBP primarily due to higher food prices. The central bank considers that these will be temporary, and inflation is expected to fall within the 7-9% target.
The US Dollar is advancing versus the Pakistan Rupee; however, it is trending lower versus its major peers, owing to a strong risk on mood in the market. The upbeat mood comes following an announcement from AstraZeneca that its covid vaccine candidate with Oxford University is 70% effective and 90% effective with some doses.
Moderna and Pfizer revealed that their vaccine candidate were both over 90% effective last week. The FDA could approve the vaccine as soon as mid-December with Americans starting to receive the jab the next day.
A vaccine is the surest and quickest way to return to normal life and pre-pandemic growth. As a result, risk appetite has surged, dragging on the safe haven US Dollar.
Looking ahead US manufacturing and services PMI for November be in focus. Analysts expect the manufacturing PMI to slip to 53 from 53.4. Meanwhile services are expected to drop to 55.5 from 56.9. A weak reading could hit demand for the US Dollar further.