Small Exchange: Pakistan denied policy loans, euro/pound parity forecast and Kenya’s slipping import covers

Peter Terlato 15 August 2017 NEWS

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This week's currency news rounded up.

World Bank denies Pakistan policy loans

In lieu of diminishing foreign exchange reserves, Pakistan has requested policy loans from the World Bank.

However, the international institution denied the bailout request. The Express Tribune reports sources at the World Bank stating that the loans will be approved if Pakistan willingly liberalises its foreign exchange policy.

“Due to deteriorating macroeconomic conditions of Pakistan, the lending agency cannot extend policy loans for budgetary and balance of payments support at this time,” the sources at the World Bank said.

Headquartered in Washington D.C., the World Bank offers countries loans for facilitation of capital programs.

The Pakistani government has witnessed forex reserves decline $4.2 billion in less than 12 months, despite repeated borrowing from international markets.

Morgan Stanley expects euro/pound to exceed parity

Morgan Stanley's latest FX Overview reveals that the bank's financial strategists anticipate that by March 2018, for the first time in history, the euro will be worth more than the pound.

Morgan Stanley predicts the euro will move "beyond parity" with the pound during the first quarter 2018, peaking at GBP£1.02.

The bank argues that a strengthening euro, coupled with a weakening pound will cause the unique event. The European continent's currency has been recovering steadily, recently achieving its best levels since the eurozone debt crisis in 2009.

Britain's pound has taken a hammering after reaching a high of EUR€1.1957 in April this year. Last week, the pound hit its lowest rate against the euro since mid-October last year, when it fell to EUR€1.096. Uncertainty surrounding Brexit negotiations is causing additional strain on the currency.

In August 2016, HSBC forecast the euro would trade one-for-one against the pound by the close of 2017.

Kenya loses further traction on import covers

The latest sets of data released by the Central Bank of Kenya (CBK) reveal import cover has slumped to a five-month low.

The CBK said foreign currency reserves total $7.4 billion, enough to balance 4.9 months of import cover. Kenya's forex reserves have fallen as a result of debt repayments, companies paying out dividends and the central bank's efforts to curb volatility.

In addition, Kenya's negative balance of trade – more goods being imported than exported – also burdens financial holdings.

Each week Small Exchange sums up currency news from around the globe and looks into how it impacts exchange rates and options.

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