Bonds doubled in late May on hopes that February elections will provide political stability and economic certainty
- Bonds rise based on reports of political stability after the elections.
- The 2036 dollar-denominated bond gained 2.4 cents.
- The maturity of 2025 has reached the strongest level since May 22.
KARACHI: Pakistan bonds hit their highest level in 15 months on hopes that the country will get more international financial assistance after securing an International Monetary Fund (IMF) tranche. news Information was given on Tuesday.
Optimism about the country’s economy after the tranche has driven bonds to double where they were at the end of May as the country is still in the grip of a debt crisis.
The 2036 dollar-denominated bond gained the most, gaining 2.4 cents at 57.76 cents on the dollar. The 2025 maturity gained just less than 2 cents, pushing it to 82.37 cents on the dollar, its strongest level since May 2022.
The latest phase of the rally, which began last month, was fueled by hopes that elections in February will provide political stability and some economic certainty. An agreement last week to unlock $700 million of IMF funding has also boosted the country’s bonds.
Meanwhile, central bank data showed it lost some of its trade competitiveness in October as its value rose against the currencies of major trading partners.
According to the State Bank of Pakistan (SBP), the real effective exchange rate (REER) index, which measures the value of the rupee against a weighted average of several foreign currencies, increased to 98.6 in October from 91.7 in September.
A REER below 100 indicates that the country’s exports are cheaper and imports are more expensive, giving it an edge in international trade. Higher REER means the opposite. REER increased 7.51% month-on-month in October, but decreased 2.9% year-on-year when it stood at 101.57.
The nominal effective exchange rate (NEER) index, which measures the value of the rupee against the same basket of currencies without adjusting for inflation, rose 6.5% month-on-month to 39.18 in October from 36.79 in September. NEER fell 21.46% year-on-year 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 due to dollar sales by exporters and optimism about the country’s economy following Pakistan’s agreement with the global lender for the next loan tranche.
In the interbank market, the rupee closed at 285.97 against the dollar, while the previous close was at 286.50. The local unit gained 0.19% against the dollar during the session. The local currency gained 75 against the greenback in the open market.
The rupee was trading at 287.50 for sale, compared with 288.25 on Friday, according to rates issued by the Exchange Companies Association of Pakistan (ECAP).
“Despite further premium decline, exporters are returning to the market to sell dollars on hopes that the rupee will strengthen further in the coming days,” a currency dealer said. The dealer said the rupee was supported by better supplies and improved economic outlook.
The currency market prediction is that the rupee will rise to around 282 per dollar, at which point the SBP will start buying dollars. According to a dealer, the rupee will remain strong due to positive news like multilateral funding and IMF Executive Board approval.