Ever since the United States (US) Federal Reserve chairman announced that the US central bank would slowly do away with its quantitative easing program on the back of improvement in the US economy, many currencies have seen their value coming down against the greenback. In Asia, this impact was further fueled by a weak Chinese production data coupled with sell-offs in capital markets. Contrary to this downward trend, the Pakistani rupee did not face the same situation. In the last one month the Pak Rupee (PKR) shed only 0.6 percent against the US dollar. This shows that PKR is stable at a time when the greenback is globally high in demand, said analysts at Topline Research.
Asian currencies recently tumbled to 21-month low after a US monetary policy meeting on June 20, 2013 announced its plan to slow down the monthly bond purchase spree of $85 billion. Improvement on US economic front means that the quantitative easing should conclude in 2014 as long as economic improvement stays in line with the Federal Reserve’s estimates. Furthermore, reports of contraction in Chinese manufacturing segment has also put additional burden on regional currencies. As a result emerging market currencies such as Indian Rupee, Malaysian Ringgit, Philippine Peso and Thai Baht fell sharply in the last few weeks. “At the time when regional currencies are experiencing a free fall against a strengthening dollar, PKR has maintained its stability,” said Topline analysts adding that: “We believe that change in political canvas is the prime reason behind the rejuvenated investor confidence that has brought $59 million to Pakistan’s stock market in the past 30 days, and $208 million since elections while PKR has depreciated by only 0.6 percent in the past month”. The cumulative foreign inflow of $1.2 billion, including Jan-May net foreign direct investment (FDI) of $761 million and YTD FIPI of $410 million, has helped in easing the burden of IMF repayments worth $1.4 billion, they added. Talks ongoing with the visiting IMF team regarding a fresh loan of $4.5-5 billion also kept PKR stable. “This coupled with other likely inflows from US and Saudi Arabian oil facility is likely to provide stability to Pakistan’s forex reserves and help the country make IMF payment of $1.8bn in 1HFY14,” analysts said. However, in order to compete in the exports market, some decline in PKR cannot be ruled out, they said.
