Pakistani rupee will remain stable in the short-to-medium term as soft demand for the country’s assets will cool the pressures on the rupee, said Fitch Solutions — research arm of the Fitch Ratings.
“Soft demand for Pakistani assets by foreign investors will continue to cool demand for the rupee. Moreover, policymakers will likely allow for some depreciation, given lower oil prices should cap inflationary pressures,” it said.
“The Pakistani rupee has weakened around 7.1 percent in the year to date against the US dollar. We forecast the unit to continue to trade weaker, forecasting the rupee to average PKR163.00/USD in 2020. “
Moreover, it also said that “we do not expect a sharper depreciation in the rupee given our expectation for support from international partners, such as the Global-20 Countries, which will boost Pakistan’s foreign exchange reserve base and ease external financing pressures.”
Warning of further rupee depreciation in the long-term, it siad “we forecast the Pakistani rupee to average weaker at PKR171.15/USD in 2021 due to higher structural inflation vis-à-vis the US. We also see risks from Pakistan’s fiscal position and an overshooting of its fiscal deficit target in FY2020/21.”
Speaking of the broader emerging markets Asia region, it said the currency volatility will subside in the second half of 2020 in comparison to the first one mainly due to the abating shocks caused by the Covid-19 pandemic.
“We at Fitch Solutions broadly expect foreign exchange volatility to cool in the second half of 2020 compared to the first half as the Covid-19 pandemic shock abates, the economic rebound gains momentum and risk sentiment generally improves.”
“However, Covid-19 continues to spread rapidly across major emerging market (EMs) and second waves of infection are seen in major developed markets (DMs), which could further weaken economic fundamentals, delay the recovery, underscore looser monetary policies, impact sentiment and weigh on currencies,” said the report.
For China, the report said that “over the longer term, we expect the unit to average CNY7.20/USD as stubborn inflation and a narrowing current account surplus add to depreciatory pressures. Indeed, we expect political risk to remain elevated and note recovering commodity prices will create a further headwind for the unit.”