Stocks surge, dollar down

KARACHI: The Pakistan Stock Exchange showed a bullish trend on Wednesday with the benchmark KSE-100 Shares index gaining 1,195.04 points.

The current index stood at 34,637.14 with a 3.45 per cent change since trading opened.

Bullish activity was also witnessed at the stock market a day earlier with the KSE-100 gaining 191.56 points.

The Pakistan stock market has performed well after reports that government-backed financial institutions would pump liquidity into the market.

Last week, a delegation led by businessmen and brokers held a meeting with Adviser to Prime Minister on Finance Dr Abdul Hafeez Sheikh and discussed the overall macro-economic situation and its impact on capital markets in the country.

Considering the present depressed market sentiment, the delegation suggested various measures for strengthening the capital markets.

It was suggested that the proposed draft of Listed Companies (Buy Back of Shares) Regulations, 2019, be approved on priority basis and the limit of 10 per cent on treasury shares should be enhanced.

It was also proposed to resolve the present issue of ready futures transaction at PSX, which is also hurting the market volumes.

The delegation also recommended that keeping in view the attractive valuations at the PSX, a market support fund may be considered.

On the occasion, Sheikh took note of all the suggestions positively and assured full support and cooperation of the government.

Meanwhile, the rupee gained marginally on some dollars selling related to arbitrage gains and also on a potential step in by the central bank to prevent the currency from falling too much, but sentiment remained fragile.

In the interbank market, the rupee closed at 151.95 per dollar compared with the previous close of 151.92. Dealers said the currency traded in the band of 151.95-152 versus the greenback in the official market.

The rupee marginally recovered its losses in the open trade and rose to 153 against the US dollar from 154 in the previous session, according to the Exchange Companies Association of Pakistan.

A currency dealer said the rupee had started showing signs of stability following the central bank’s intervention. “Since today it seems that the bout of major devaluations has been completed and the central bank is adjusting the market.”

Malik Bostan, president of the Forex Association of Pakistan, said the rupee strengthened in the open market, tracking improvement in the currency in the interbank market and weak dollar demand from investors and public.

“The demand for the dollars has softened,” Bostan said. “The rupee is likely to stabilise at the current levels for now.”

The State Bank of Pakistan (SBP) had said it would stand ready to check unwarranted volatility in the foreign exchange market after the rupee continued to weakening against the dollar.

“SBP will continue to closely monitor the situation and stands ready to take measures, as needed, to address any unwarranted volatility in the foreign exchange market,” the central bank said in a monetary policy statement earlier this week after raising the interest rate by sizeable 150 basis points to 12.25 percent.

The rupee has lost more than 35 percent of its value against the dollar since January 2018. The rupee has been recording record lows against the dollar in the wake of a $6 billion loan accord with the International Monetary Fund (IMF). The IMF’s bailout deal, which is still to be approved, seeks a market-determined rate for the rupee.

The SBP stands to bring about economic stability. It has raised its key policy rate by a cumulative 650 basis points (bps) in more than two years.

Fitch Solutions, a research arm of ratings agency Fitch, said the rate hike would augur well with the battered rupee.

“The 150 bps interest rate hike will likely support a stabilisation in inflation over the coming months,” the Fitch Solutions said in a report on Wednesday. The research institution, however, foresaw no more rate hike in 2019 as annual consumer inflation started to slide to 8.8 percent in April from 9.4 percent in March.

“In particular, the interest rate hike has brought the real interest rate firmly into positive territory of around 3.5 percent, which should help to stabilise the rupee and hence prices of imported goods,” Fitch Solutions said. “Higher interest rates and a more stable currency will ease consumer price inflation.”

Bostan said the rupee is expected to remain flat on expectations of healthy remittance inflows on Eid festivity. Remittances rose by 8.45 percent to $17.87 billion in the first 10 months of 2018/19 fiscal year.

Meanwhile, Pakistan and Saudi Arabia will operationalise oil facility of $3.2 billion on deferred payment from July 1, 2019.

It will help Islamabad reduce outflow from declining foreign currency reserves and meeting the quarterly target on Net International Reserves (NIR) under the IMF programme.

However, oil facility from UAE could not be so far finalised and it is not yet known when it will become operational.

While thanking Saudi Crown Prince Mohamed Bin Salman (MBS), Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh said that Kingdom of Saudi Arabia is going to activate its deferred oil facility of $3.2 billion per annum basis for next three years period from July 1, 2019.

“We would like to thanks the Crown Prince of Saudi Arabia His Highness Mohamed Bin Salman for his continuous support for the people of Pakistan. From 1st July 2019, KSA is activating the deferred payment for petroleum products facility of $275 million per month amounting to $3.2 billion per annum for 3 years. This will strengthen Pakistan's Balance of Payments position,” said Dr Abdul Hafeez Shaikh in his tweet on Wednesday.

This oil facility had already announced by the KSA and now it is being operationalised.

This oil facility on deferred payment is part of overall financing arrangement for which the IMF has sought confirmation from international partners. Pakistan will have to give assurances on rollover of debt from China, Saudi Arabia and UAE for getting approval from the IMF’s Executive Board.

In the aftermath of striking staff level agreement with the IMF, the Fund in its statement clearly mentioned that this agreement is subject to IMF management approval and to approval by the Executive Board, subject to the timely implementation of prior actions and confirmation of international partners’ financial commitments. Now Pakistan will have to get commitments from China and UAE as well on eve of executive board meeting so that the financing requirements could be fulfilled for next three years under the IMF programme.

Federal Minister for Planning Makhdum Khusro Bakhtyar said that this oil facility on deferred payment would help Pakistan reduce outflow from foreign currency reserves. “It will have positive effects on markets as well,” he added.

Minister of State for Revenues Hammad Azhar termed it good news from brotherly country Saudi Arabia and it would greatly help Pakistan's Balance of Payments position and the Foreign Exchange reserves of the country. He said that deficits were coming down and the economy was heading towards achieving stability soon.

Ministry of Finance spokesman/adviser Dr Khaqan Najeeb stated in his statement that the external sector indicators were pointing to stability as the current account deficit decreases by 27 percent bringing down to $11.6 billion during July-Apr FY2019 compared to $15.9 billion during the last year. The imports of goods decline by 4.9 percent and services decline by 19 percent, while workers remittances increased by 8.5 percent.