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Rupee expected to trade at 216 against dollar in next 10 days

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  • Analysts predict multilateral creditor’s assistance will strengthen rupee. 
  • Rupee expected to trade at 216 to the dollar in next 10 days. 
  • Analysts see interest rates in US topping 5%.

KARACHI: Rupee is likely to appreciate against the US dollar in the coming week, depending on the expected inflows from the Asian Development Bank (ADB) and Pakistan’s removal from the Financial Action Task Force’s (FATF) grey list, The News reported. 

The local currency dropped against the dollar by 0.89% this week in the interbank market. However, in the final trading session on Thursday, the rupee drove up to 220.84 due to positive news from the ADB and FATF. It closed at 218.89 on Monday.

Multilateral creditors’ assistance in the wake of the floods would help increase foreign exchange reserves and strengthen the local currency, the analysts believe. 

As of October 14, the forex reserves held by the State Bank of Pakistan stood at $7.59 billion — enough to cover about one month of imports.

The rupee is expected to trade at 216 to the dollar in the next 10 days and 210 to the dollar in the following 30 days, according to Tresmark, a terminal that monitors live prices of financial markets.

“This is because of ADB-related inflows of $1.5 billion in the coming week and $2 billion of inflows in the first week of November. Of course, this would not have been possible without the finance minister’s undervalued rupee mantra,” Tresmark said in a client note.

But the real test for the rupee would be six months from now, it added.

Analysts see interest rates in the US topping 5% (last seen in 2008) and a relentless surge of the dollar. 

While major currencies unanimously have a bearish bias, markets are forecasting the Indian Rupee to be at 95 per dollar, the Bangladesh Taka to be at 115 per dollar, and the Yuan to keep weakening. Dollar strength is one factor, but the global recession remains a much bigger concern.

“While CAD (current account deficit) for September was almost at breakeven, economists are looking at a 15-20% drop in exports, plus a 5% drop in remittances,” it said.

According to them, import compression and slowing down the economy further would be an ongoing requirement to sustain the economic winter, it added.

The rupee weakened during the outgoing week marginally on the back of the settlement of smaller letters of credit. Market estimates that about 50% (or around $600 million) still remains to be processed.

“The interbank market is also completely out of dollar liquidity, as can be seen in multi-month lows in swap premiums. Premiums for 1, 3, and 6 months are -2 (down from 130), 25 (down from 390), and 175 (down from 750) respectively,” it said.

In a positive development, the FATAF on Friday removed Pakistan from its list of countries that are under “increased monitoring” known as the “grey list”. This would help boost the nation’s reputation and get a credit rating upgrade from the global rating agencies.

Since the International Monetary Fund (IMF) included the implementation of FATF action plans as a structural benchmark, the removal would make it possible for Pakistan to successfully complete the next review of the IMF’s Extended Fund Facility.

However, the global rating agency Fitch cut Pakistan’s sovereign credit rating by a notch to ‘CCC+’ from ‘B-’, citing further deterioration in the country’s external liquidity and funding conditions and a decline in foreign exchange reserves.

The decrease comes three months after Fitch downgraded the country’s outlook from “stable” to “negative” and revised the ranking to B-. Fitch typically does not assign outlooks to sovereigns with a rating of ‘CCC+’ or below.

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Positive IMF negotiations propel KSE-100 Index above 94,000 points

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As a result of investors’ optimism about the reported progress in the continuing talks with the International Monetary Fund (IMF), the Pakistan Stock Exchange (PSX) experienced a robust surge.

The benchmark KSE-100 Index of the PSX, which tracks market sentiment, rose 713 points to a new record high of 94,068 points, breaking above the 94,000-point barrier, as the trading session began.

Early in the day, the stock market began its upward trajectory as the KSE-100 Index steadily rose, gaining 574 points to reach 93,932 points. A possible agreement with the International Monetary Fund (IMF) might lead to more fiscal stability and back Pakistan’s economic reforms, which is why investors are so optimistic about the country’s future.

Officials from the Federal Board of Revenue (FBR) informed the International Monetary Fund (IMF) on Wednesday that the government would not be introducing a mini-budget and would instead continue to aim to collect Rs12,970 billion in taxes each year.

In line with continuing discussions with the Fund, FBR sources revealed that petroleum goods will not be subject to the General Sales Tax (GST).

The fact that Pakistan’s tax-to-GDP ratio has increased from 8.8% to 10.3%, a 1.5% gain viewed as a favorable sign of Pakistan’s fiscal policies, has reportedly pleased the IMF, who has voiced satisfaction at Pakistan’s recent economic performance.

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Provinces must inform IMF team of the postponed legislation for 45% agricultural tax.

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The visiting International Monetary Fund (IMF) delegation is scheduled to meet with provincial government leaders today to examine progress in implementing a tax on agricultural income of up to 45% and discuss the execution of other fiscal policies.

The agricultural income tax was to go into effect on January 1, 2025, after the provincial governments were given until October 31 to pass the necessary legislation. Nevertheless, the deadline was missed by every single province.

Rumor has it that neither Sindh nor Balochistan have moved forward with the tax on agricultural income bill, despite approval from the Punjab government and a draft being developed in Khyber Pakhtunkhwa.

All four provinces have signed the National Fiscal Pact as per the conditions set by the IMF. The reason(s) for the delays will be explained to the IMF delegation.

Federal spending on things like healthcare, social security, and regional infrastructure development is expected to be transferred to the provinces under the IMF agreement, according to sources from the Ministry of Finance. Provincial governments have been singled out by the IMF delegation as key players in tax and economic reform efforts.

Reviewed Here: FBR Excludes Mini-Budget and GST on Petrol from IMF Negotiations

The provincial budget surplus targets will also be briefed to the IMF delegation, according to the sources. The four provinces were supposed to achieve a total surplus of Rs342 billion in the first quarter, but they only managed to manage Rs182 billion. A large portion of the deficit was caused by the Rs160 billion budget deficit in Punjab.

The government’s pledge to retain the annual tax target of Rs12,970 billion was reaffirmed by the Federal Board of Revenue (FBR) on Wednesday, who also confirmed that no mini-budget will be implemented.

In line with continuing discussions with the IMF, FBR sources have also said that petroleum goods will not be subject to the General Sales Tax (GST).

According to sources, the International Monetary Fund has voiced its approval of Pakistan’s recent economic performance, highlighting the country’s improved fiscal policies, which have led to a 1.5% increase in the tax-to-GDP ratio, from 8.8% to 10.3%.

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Petrol prices are expected to experience another increase in Pakistan.

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The inflation-affected nation is expected to encounter another increase in petrol prices, with recommendations indicating a rise of Rs. 2.58 per litre for petrol and Rs. 5.91 per litre for high-speed diesel.

Sources indicate that, if sanctioned, petrol prices will ascend to Rs. 250.96 per litre, whereas high-speed diesel will be priced at Rs. 261.05 per litre.

Sources indicated that the suggested increase is due to the elevated premium on petroleum products in the worldwide market and rising import expenses.

The premium on imported petroleum products has increased, leading the government to contemplate pricing modifications effective November 16, sources indicated.

On October 31, the federal government published the prices of petroleum products for the upcoming fortnight, increasing the prices of petrol and high-speed diesel.

A notification announced an increase in petrol price by Rs 1.35, raising it to Rs 248.38 a litre. The price of high-speed diesel was fixed at Rs 255.14 per litre after an increase of Rs 3.85.

Also read: Pakistan’s weekly inflation jumps to 15.02pc

Simultaneously, the costs of light diesel and kerosene oil were reduced. The statement states that kerosene oil is priced at Rs 148.5 per litre following a reduction of Rs 4.92.

The cost of light fuel was reduced by Rs 2.61 to Rs 147.51 per litre.

The rampant hike in the prices came at the time when the weekly inflation, measured by the Sensitive Price Indicator (SPI), witnessed an increase of 0.28 percent for the combined consumption groups during the week ended on October 17, the Pakistan Bureau of Statistics (PBS) reported.

According to the PBS data, the SPI for the week under review in the above-mentioned group was recorded at 319.79 points as compared to 318.91 points during the past week.

In comparison to the same week last year, the SPI for the combined consumption group during the reviewed week experienced a 15.02 percent increase.

The weekly SPI with the base year 2015-16 =100 covers 17 urban centres and 51 essential items for all expenditure groups.

Likewise, SPI for the lowest consumption group of up to Rs 17,732 witnessed increase of 0.27 percent and went up to 313.74 points from last week’s 312.91 points.

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