FREE

Devaluation in Interbank Market, PKR down to PKR 115/USD

According to the treasury department of a Commercial Bank, PKR has started depreciating once again, and is trading at around PKR 115/USD as of the writing of this flash note. It remains to be seen where the USD will eventually settle.

This depreciation is inline with our expectations, as we had anticipated PKR to depreciate to PKR 120/USD by December 2018 (please see our report titled “Changing Timing of Assumption on PKR Depreciation” released on December 28, 2017). The Federal Advisor on Finance, Revenue and Economic Affairs  had mentioned in a recent business summit that PKR devaluation last December had helped control soaring imports and enhance exports; hence, today’s wave of devaluation is likely to be endorsed by the Government.

We re-iterate that PKR depreciation bodes well for exporters (textiles, IT companies, etc), Oil and Gas E&P stocks and IPPs. Depreciation is detrimental to importers like Autos and Steel Companies. However, recently these companies have been able to pass on the impact of PKR devaluation to their customers, and we believe that they will be able to do so in the future too. In case of pass-through, PKR devaluation will not be detrimental to Autos and Steel companies. Cements take a mixed impact as they both import coal and export cement. But the impact of all of the above has already been priced-in as the market at large had been expecting further PKR depreciation.