With a new wave of Covid-19 pandemic around the world, economies have plunged, leading to rising inflation and weak currencies. However, the Pakistani rupee climbed to join the list of Asia’s top three best-performing currencies.
Pakistani rupee reached a sixth-month high of 158.9 against the US dollar on Monday (November 9, 2020). It ranked third in Asia’s best-performing currencies after appreciating by 3.1% against the US dollar since October 1, 2020, lagging only behind the South Korean Won gaining 4.5% and the Indonesian rupiah recovering by 3.6%.
Asian Best-Performing Currencies (since Oct-20):
1# Indonesian Rupiah 4.5%
2# South Korean Won 3.6%
3# Pakistani Rupee 3.1%
US$ stands at 6.5month low to PKR158.91.
Drop in PKR/USD parity reduces pressure on country's external debt and imported inflation that affects masses.
— Khurram Schehzad (@kschehzad) November 9, 2020
“Uptick in remittance inflows ($2 billion per month since the beginning of FY21), a quarterly current account surplus ($792 million) after more than five years (last time a surplus was recorded was in 3QFY15) against a deficit of $1.49 billion in the same period last year coupled with the dollar depreciating against all major currencies (the dollar index is down 10pc since March) are some of the factors that led to the appreciation of the rupee,” said Sana Tawfiq, an analyst at Arif Habib Ltd told Dawn.
Pakistan had an inflow of $1.4 billion dollars from the International Monetary Fund as an emergency loan. It also received an economic relief package in the wake of the COVID-19 pandemic from the World Bank. Such an appreciation against the US dollar will help reduce inflation in the country.
— Khurram Schehzad (@kschehzad) November 3, 2020
However, Islamabad has to repay $2 billion to Saudi Arabia of the $3 billion loan. It has already repaid $1 billion in May this year.
Pakistan may get a $2 billion from China like it did last time when it paid back $1 billion to Saudi Arabia, reported The Tribune citing a senior Finance Ministry official.
Chinese authorities have privately expressed reservations over slow progress on the China Pakistan Economic Corridor (CPEC) but they are likely to bail out Islamabad due to the strategic nature of the relations, said the report.
“The rupee trend will reverse in the coming weeks as the U.S. election ends and dollar basket appreciates,” Mustafa, chief executive officer at Ismail Iqbal told Bloomberg.
On the other hand, the Indian rupee has seen better days. The Indian rupee has been consistently declining due to strengthing US dollar in the international market and rising crude oil prices that fell significantly due to the pandemic.
Analysts believe that following the conclusion of the US Presidential elections, Joe Biden’s win has brought a decline in volatility in the market.
“I expect the dollar NSE 2.04 % to gain in the short term because of the stability that Biden brings and also as markets are expecting him to step up spending,” said Ashish Vaidya, head — treasury at DBS Bank told Economic Times.
“However, weakness in the rupee is not expected to be too much because the RBI will ensure that any large fall in the currency will be cushioned with its record forex reserves.”
Biden’s victory also brings the possibility of a stable US-Iran foreign policy that will bring down the price of crude oil from Iran.
India maintained strong ties with Tehran until, under pressure from the US, it had to cut its import of oil. The US-directed all countries to stop importing oil from Iran in order to isolate Iran’s funding channels after Trump pulled out of the nuclear deal. New Delhi conceded to these sanctions and had to look for alternatives sources that were expensive than Iranian oil.
If Biden rejoins the agreement, it will give New Delhi access to cheaper oil, thus reducing the outflow of dollars.