Bonds doubled from late May on hopes that February’s polls would provide political stability and economic certainty
- Bonds rise on reports of political stability after polls.
- In 2036 the dollar bond earns 2.4 cents.
- The 2025 expiration is at its strongest level since May 22.
KARACHI: Pakistan’s bonds rose to a 15-month high on hopes of more international financial support after the country secured its International Monetary Fund (IMF) tranche, The news reported on Tuesday.
Optimism about the country’s economy after the tranche has seen bonds double where they were at the end of May, as the country continues to be plagued by a debt crisis.
The 2036 dollar bond led the biggest rally, gaining 2.4 cents to trade at 57.76 cents on the dollar. The 2025 delivery gained just under 2 cents to 82.37 cents on the dollar, its strongest level since May 2022.
The latest leg of the rally, which began last month, was fueled by hopes that elections scheduled for February would provide political stability and allow for some economic certainty. An agreement last week to release $700 million in IMF financing also boosted the country’s bonds.
Meanwhile, it lost some of its trade competitiveness in October as it appreciated against a basket of currencies of major trading partners, according to central bank data.
The Real Effective Exchange Rate (REER), which measures the value of the rupee against a weighted average of several foreign currencies, rose to 98.6 in October from 91.7 in September, according to the State Bank of Pakistan (SBP). .
A REER below 100 indicates that the country’s exports are cheaper and imports more expensive, giving it an advantage in international trade. A higher REER means the opposite. REER rose 7.51% month-on-month in October, but fell 2.9% year-on-year to 101.57 points.
The Nominal Real Exchange Rate (NEER), which measures the value of the rupee against the same basket of currencies without adjusting for inflation, also rose 6.5% month-on-month in October to 39.18 from 36.79 in September . NEER fell 21.46% YoY from 49.89 in October 2022.
REER and NEER are calculated using the trade weights of 37 countries, which account for 90% of Pakistan’s trade flows. The rupee continued to rise against the dollar on Monday on dollar-denominated sales by exporters and optimism about the country’s economy after Pakistan agreed with the global lender on its next loan tranche.
In the interbank market, the rupee closed at 285.97 per dollar, against the previous close of 286.50. The local unit strengthened 0.19% against the dollar during the session. The local currency gained 75 against the dollar in the open market.
According to rates published by the Commodities Association of Pakistan (ECAP), the rupee was trading at 287.50 to sell, up from 288.25 on Friday.
“Despite the fall in forward premiums, exporters are returning to the market to sell dollars, hoping that the rupee will strengthen further in the coming days,” said a foreign exchange trader. The rupee is supported by better supply and improved economic outlook, the trader added.
The forex market forecast is that the rupee will rise to around 282 per dollar, at which point the SBP will start buying dollars again. The rupiah will remain strong on positive news such as multilateral financing and IMF executive board approvals, according to a representative.
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