EUR 8.70 For Business Accounts Only

Intermarket Pulse: Pakistan Market: PKR slips again; broadly favorable for Economy & Market

• The PKR slipped by 4.0% vs. the US$ to 115 in the interbank market following c. 5% slip in Dec’17 (cumulative FY18TD PKR depreciation is now almost 10%). This followed recent rhetoric from the new Finance Ministry hinting at greater currency flexibility, in line with IMF’s policy recommendations. While authorities may not intervene to pull it back, it is difficult to see another major move in the currency before elections.   
• According to SBP, the move is largely intended to contain imports and arrest the widening C/A deficit. Broadly, this should contain the trade balance (FY18F CAD: 4.5% of GDP) but will likely add to inflationary pressures and debt servicing burden. We estimate CPI to rise by 20bps and fiscal deficit by 0.2% of GDP, all else the same.
• The move could rejuvenate foreign investors who – based on our meetings last month - generally considered the 5% earlier depreciation as inadequate. KSE-100 rose 2% yesterday as index heavyweights E&Ps, Banks, IPPs, Textiles are key beneficiaries. However, Autos and importers will likely see pressure on margins.