Currency devaluation could further jolt stock markets says: Bloomberg

Lahore: A Bloomberg article has reported amidst the political turmoil that has left the incumbent government in a tangle, the Pakistan rupee is heading towards devaluation which is jolting investor appetite and forcing them to keep a distance from the country’s stock market.

As per the report, Pakistan Stock Exchange (PSX) which was among the top five stock markets globally last year, has experienced a turbulence since its inclusion into MSCI Emerging Market Index in June. The Panama Leaks investigation taking place into the Prime Minister and his family, has made the KSE-100 index drop 14pc since reaching a high in late May said Bloomberg. On the 5th of July, PKR fell sharply both in the interbank and kerb market to reach a 2.5 year high of Rs108 from Rs104.91 earlier on. The PKR has remained stable since August 2015, and according to a Topline Security report, the currency has devalued annually by 5 percent in the last decade or so.

Bloomberg said that according to Moody’s Investor Service, the country’s currency was 20pc overvalued and recommended the State Bank of Pakistan (SBP) to show some flexibility and let the PKR depreciate. Pakistan’s current account deficit has more than doubled in comparison to last year and its foreign exchange reserves are dwindling. Moody also said that 31pc of the country’s outstanding government debt was in foreign currency in 2016.

Further citing from Moody’s report, Bloomberg said that the forex reserves had fallen in April to levels of only being able to cover imports of four months only. It reached out to Nikhil Bhatnagar, director of Asia sales at Auerbach Grayson & Co. in New York, who said ““The fiscal position will continue to deteriorate and there will be a policy limbo until next year, until the election is done.”

Finance Minister Ishaq Dar hasn’t been keen on letting the PKR depreciate against the US dollar and the rupee has recovered from its 3pc fall two weeks ago. Bloomberg said Moody’s report on 11th July said that the government would try to avoid abrupt movements in the PKR before next year’s election.

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