The Pakistani currency came under renewed pressure as it fell 0.55% (or Rs 1.15) on a daily basis to hit a two-week low of Rs 210.95 against the US dollar in the interbank market on Friday. after the country’s low foreign exchange reserves fell again a day ago. The rupiah improved by 0.14% (or Rs0.30) to Rs209.80 after Pakistan reached a staff-level deal with the International Monetary Fund (IMF) on Thursday to revive a $6 billion loans.
While the long-awaited IMF deal did not help the rupiah recover, the services-level deal helped cool high yields (rate of return) on three-month government bonds to 10 years from 30 to 70 basis points in the past. two days in the secondary markets. The rupiah halted the rally in the middle after the central bank announced on Thursday a further $99 million drop in foreign exchange reserves to $9.72 billion in the week ended July 7, 2022, an expert said . There was pressure on import payments, as the IMF would release a $1.2 billion loan tranche in August following final approval by its board.
The Rupee could remain under pressure for some time until foreign flows start to reach the country. On the other hand, however, “(bond) yields have started to fall since Pakistan entered into the service-level agreement with the IMF on July 13, 2022,” Topline Research analyst Umair Naseer said. in a comment. “In addition to the staff-level agreement, a sharp reduction in international oil prices and improved liquidity in the domestic banking system have led to lower bond yields,” he said.
The data suggests that the yield on three-month Treasury bills fell 48 basis points over the past two days to hit 15% in the secondary market on Friday. It fell 33 basis points for six-month Treasury bills to 15.38%, while the yield fell 27 basis points to 15.59% on 12-month Treasury bills. Similarly, yields on three-, five- and ten-year Pakistani investment bonds fell 60 to 70 basis points to 13.33%, 12.80% and 12.58% respectively over the past two days.
“The realization of IMF and other foreign flows, global commodity prices and the overall economic and political situation would remain key to the outlook for bond and treasury yields,” he said. Excess liquidity in the system also contributed to lower overall market returns. This is evident from the banks’ access to the SBP repo facility, which placed funds of Rs 198 billion with the SBP on July 14 and Rs 296 billion on July 13 at a repo rate (floor rate ) by 14%. This is also reflected in the strong participation of 725 billion rupees in Thursday’s GDP auction by banks, whose government only accepted bids of 145 billion rupees.
“Yesterday (Thursday) auction yields also remained in check and the government did not accept 10-year bond offers, signaling to the market that it is not willing to accept rates high for long-term bonds.” Although inflation is expected to remain elevated at around 18% on average in FY23, the recent decline in gasoline and diesel prices and expectations of further decline due to lower international prices oil could provide some relief and help reduce yields.