The new week promises to be eventful for Pakistan, especially for the Pakistani Rupee (PKR) and gold markets. The State Bank of Pakistan (SBP) is all set to announce arguably its most important interest rate update on Monday, ahead of the federal budget 2024-25 presentation on Wednesday.
Meanwhile, a trader last night told ProPakistani in an email that the rupee could rise to 260-270 as dollar demand eases following departure of majority of Pakistani pilgrims to Saudi Arabia for this year’s Hajj. However, such a level of growth is possible only if the International Monetary Fund (IMF) announces staff-level agreement on a new loan program, SBP cuts the policy rate, and the budget is people-friendly.
The holy trinity of SBP Monetary Policy announcement, budget presentation, and IMF talks is pivotal. We see PKR appreciating if authorities opt for public support instead of austerity. While 260-270 seems achievable, we dont expect PKR to deviate from current level of 278/$.
Surprisingly strong inflation data from the last few weeks are hinting at a big rate cut tomorrow, but be ready for an upset.
One of the primary factors supporting the expectation of a rate cut is the downward trajectory of Pakistan’s inflation. Both headline and core inflation figures have shown significant improvement. For May 2024, (CPI) based inflation slowed to 11.8 percent on a year-on-year basis in May 2024 as compared to an increase of 17.3 percent in the previous month and 38 percent in May 2023,
X players, brokerages, and some experts see this as the main reason for the key lending rate to fall upwards of 100 bps tomorrow. SBP Governor Jameel Ahmed’s news conference following the interest rate announcement tomorrow will be closely watched.
However, economic activity during the budget week is unpredictable. The Pakistani Rupee is likely to remain stable at 278/$ as it has managed to stay at this level for the past few months.
Market Analysis
Gold prices were stable on Friday after increasing by nearly Rs. 2,500 on Thursday but remained above Rs. 240,000. This rate followed China’s recent announcement of halting its gold purchases which impacted global rates. In any case, gold prices could drop sharply if SBP eases its monetary policy stance tomorrow.
If big buyers like China stay out of the gold market for an extended period, gold may struggle to rise, whereby the PKR’s position against the bullion will continue to improve. The PKR/$ exchange rate is expected to start the week strongly.
- Gold: Heading for a volatile week. Upside should be capped at around Rs. 250,000, with support around Rs. 242,000-244,000. A break could risk a drop to Rs. 238,000-239,000, otherwise, it might reach Rs. 248,000-250,000. Expect a wide trading range in international markets.
- Euro (EUR): Currently at Rs. 302.9; it will most likely move as high as 305 and needs to fall below 300 to help improve the realization of ex-pat remittances from the EU. Alternatively, it might remain at 302 all week.
- British Pound (GBP): Currently at Rs. 356; there is strong resistance. More uncertainty on UK market due to elections and civilian riots could lead to PKR gaining big against the top currency. It might fall back to Rs. 350-351.
- Australian Dollar (AUD): Currently at Rs. 185. As long as 185, AUD will remain under pressure. If 185 breaks, the next threshold is 182-183. Otherwise, it could reach 188-190. Expect a small decrease regardless.
