General

Pakistan

Pakistan’s “Dawn” and other media reported on September 15 that recently, the Pakistani rupee has continued to depreciate. On September 14, the exchange rate of the Pakistani rupee against the U.S. dollar hit a record low, with 1 U.S. dollar being exchanged for 168.94 rupees, which severely affected the confidence of the market and investors.

The Pakistani rupee has always been known as the worst-performing currency in Asia. In the past year, the depreciation rate has repeatedly broken through the line. On August 26 last year, 1 U.S. dollar exchanged for rupee as high as 168.43. Since then, the rupee has gradually adjusted back. The exchange rate reached its highest point on May 14 this year. 1 U.S. dollar was 151.83 rupees, which has continued to fall since June. Insiders in the banking industry believe that "the U.S. dollar still has room for further appreciation in the coming weeks and months."

The depreciation of the rupee has led to high cost of imported goods, and Pakistan's imports in the 2021 fiscal year (2020.07-2021.06) amounted to 54 billion U.S. dollars. Currency devaluation indirectly pushed up the inflation rate, and domestic prices rose sharply.

The market believes that the continued depreciation of the Pakistani rupee against the U.S. dollar is mainly due to the following reasons:

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1. The market predicts that the economy will recover, business transactions will become more active, import costs will increase, and the trade deficit will increase. The current account deficit may account for 2%-3% of GDP.

2. After the Afghan Taliban came to power, the United States froze nearly 10 billion U.S. dollars in assets of the Afghan Central Bank in the United States and stopped sending cash to Afghanistan. The Atta government was in a hurry. The government and people rushed to buy U.S. dollars from Pakistan through various channels, which greatly increased the demand for U.S. dollars.

3. The government bonds will expire on September 30. Investors want to convert the realised rupee into U.S. dollars, which will also increase the demand for U.S. dollars.

In order to prevent the continued depreciation of the Pakistani rupee, it is reported that the State Bank of Pakistan (SBP) has injected 1.2 billion U.S. dollars into the foreign exchange market from mid-June to the first week of September this year. This is clearly at odds with the foreign exchange policy of the International Monetary Fund (IMF), the Ministry of Finance of Pakistan and the Central Bank of Pakistan that claim that the value of the rupee should be determined by the market. Facts have also proved that the expansionary monetary policy implemented by Pakistan still cannot prevent the devaluation of the rupee.

A study by the Asian Development Bank stated that due to the structural defects in Pakistan’s economy that cannot be repaired, once GDP growth exceeds 3.7%, it is prone to a balance of payments crisis. Pakistan’s imports in July and August reached 12.1 billion U.S. dollars. The trade deficit of US$7.5 billion (a year-on-year increase of 1.2 times) is a record high.

On September 14, Pakistani Finance Minister Tallinn said that Pakistan’s trade deficit will continue to increase, but it is currently manageable and there is no need to worry. If the economy is overheating, the government will make appropriate “adjustments”.

▎Lebanon

Earlier news, the chairman of the Lebanese Food Importers Federation stated that the continuous depreciation of the Lebanese pound led to the recent rise in national prices. If this continues, Lebanon will experience a severe shortage of goods within a month.

According to reports, due to the depreciation of the Lebanese pound and soaring prices, some supermarkets have seen a surge of merchandise purchases, and fuel shortages and restricted sales have occurred at gas stations in southern Nabatiyah Province and other places. Demonstrators continued to protest against currency devaluation and deterioration of living conditions in many places in Lebanon. Many main roads were blocked, and traffic in Tripoli was almost paralyzed.

▎ Yemen

The exchange rate of Yemen’s legal currency, the rial, has continued to depreciate since July of this year, and has historically fallen below the 1,000 rial to 1 U.S. dollar mark. The devaluation of the currency will further deteriorate the lives of local people.

Before the outbreak of the large-scale civil war in Yemen in 2015, the exchange rate of the rial against the US dollar remained at around 215 to 1. With the outbreak of the war, the Yemeni currency continued to depreciate.

At the end of 2019, the Yemeni government began to print a large number of new versions of banknotes, which accelerated the rate of devaluation of Yemen’s currency. Although the Yemeni government has repeatedly tried to stabilize the exchange rate, all attempts have failed in the context of the war and the simultaneous operation of two central banks in Yemen.

With the continuous depreciation of the currency, the prices of all materials including food and daily necessities in the areas under the control of the Yemeni government have continued to rise. In response to the rapid depreciation of the currency, more dealers selling imported products began to trade in foreign currencies such as U.S. dollars.

Mobile phone dealer Assel Sadi: As a trading company, all our products are imported from abroad, so we can only trade through Saudi Riyals or U.S. dollars.

According to Axel, people can buy goods directly in foreign currencies, or pay in Yemeni rials at real-time exchange rates. When they receive the Yemeni rial paid by the customer, they will exchange it into foreign exchange as soon as possible to avoid losses caused by further currency depreciation.

The prices of other commodities that are still priced in Yemeni rials continue to rise. Even if wages increase, the growth rate of most people's wages is far behind the rate of currency depreciation.

Mobile phone dealer Assel Sadie: Many Yemenis now make a living by doing odd jobs, and they settle their wages every day. Even if they are government workers or office workers in a company, their salary is definitely Yemeni riyals, an average of five to six thousand rials or seven to eighty thousand rials per month, which is less than 100 U.S. dollars (approximately 650 RMB).

▎Myanmar

On September 15, local time, the Central Bank of Myanmar put 8 million U.S. dollars into the market at a price of 1750:1 to balance the exchange rate. Since the beginning of this year, the Central Bank of Myanmar has invested a total of US$144.8 million on the market 33 times, of which US$23 million has been invested twice since September. In addition to the US dollar, the Central Bank of Myanmar also intervened in the exchange rate market by requiring exporters to sell temporarily unused foreign exchange within four months.

However, the frequent intervention of the central bank has not been able to curb the downward trend of the kyat. The current market price of the kyat has fallen to more than 2,000 kyats to 1 U.S. dollar, setting a record low in the history of the kyat exchange rate.

▎Brazil

The Monetary Policy Committee of the Central Bank of Brazil announced on September 22, local time that it would raise the benchmark interest rate from 5.25% to 6.25%. This is the fifth interest rate hike by the Central Bank of Brazil this year. The current level of interest rates in Brazil has reached the highest point since 2019.

Last week, the Brazilian Central Bank's survey of more than 100 domestic financial institutions showed that these financial institutions generally expect that Brazilian interest rates will continue to rise in the remaining three months of this year, and reach 8.25% by the end of 2021.

In accordance with established practice, the Central Bank of Brazil will adjust the benchmark interest rate as the main means of controlling domestic inflation. In August of this year, the National Consumer Price Index (IPCA), regarded as Brazil’s official inflation indicator, reached 0.87%. This is the highest level for the same period in August since 2000. Brazil’s inflation rate in the previous 12 months reached 9.68%, the highest level since February 2016. As a result, the Central Bank of Brazil once again made a decision to substantially increase the benchmark interest rate.

In addition, the latest report recently released by the Brazilian National Geographic and Statistics Institute (IBGE) shows that, at present, the broad consumer price index (IPCA), which reflects the country’s official inflation indicator, has experienced its peak from the 1980s to the 1990s. The price of basic daily necessities such as food, fuel and energy has repeatedly reached new highs again, which has increased the pressure on local people’s daily consumption.

Brazilian economic analysts believe that the factors that cause inflation come from many sources, including drought and frost caused by global climate change, and the interruption of the global raw material supply chain during the epidemic that caused the supply of products to exceed demand. Analysts also believe that the increase in the exchange rate of the U.S. dollar against the Brazilian real is the main cause of inflation in the country. This phenomenon reflects the instability of the Brazilian political and economic situation, especially the uncertainty of the Brazilian political situation, which will hit The confidence of foreign investors has prompted them to abandon their investment in the country, which may push the dollar exchange rate higher.

Economists pointed out that the recent political instability in Brazil has had a significant impact on the country's price levels. Data from Brazil’s National Geographic and Statistics Bureau shows that in August this year, the national broad consumer price index rose to 0.87%, creating a new high in the month’s price index in 21 years. At the same time, the corresponding price index has increased by 9.68% in the past 12 months, and the price of food products has increased by a large amount, including rice, which has increased by 32.68%, beans by 40.28%, corn flour 28.15%, meat 30.77%, and soybean oil 67.7%. In addition, gas and gasoline prices have also risen significantly, reaching 31.7% and 39.09% respectively. Analysts believe that the prices of the above-mentioned products may continue to rise in the next few months due to political instability, and it is expected that the country’s broad consumer price index will reach 8.3% in 2021, far higher than the government’s target of 5.25%.

Brazil’s Vargas Foundation economist Konsdela pointed out that rising prices may cause damage to the country’s "Real Plan", which was proposed in the 1990s as an anti-inflation plan. Economic plan.

▎Russia

The Central Bank of Russia has raised interest rates 4 times during the year, raising interest rates by 225 basis points in total. However, Russia’s August inflation rate soared to 6.7%, a 5-year high, far exceeding the 4% inflation target set by the Central Bank of Russia.

▎Turkey

Turkey, similar to Russia, has raised interest rates by more than 200 basis points during the year, and even the governor of the Turkish central bank was "fired" because of the excessive rate hike. Even if this is achieved, the Turkish inflation rate rose to 19.25% in August. .

As of August, Brazil, Russia, and Turkey are the top three economies with the largest cumulative rate hikes in the world, but they still cannot cool their own inflation, let alone those countries whose rate hikes are not as high as that of the three countries.

According to statistics, in addition to these three countries, eight other countries including South Korea, Mexico, Argentina, Chile, Sri Lanka, Hungary, the Czech Republic, and Peru have announced interest rate hikes this year.

Another important factor in the currency devaluation of emerging countries is the Fed's promotion of interest rate hikes. As the Fed is expected to raise interest rates in the future, the market's move to sell currencies from emerging countries to buy U.S. dollars will further accelerate. The worrying issue of emerging countries’ economies is that the burden of debts settled in US dollars and other foreign currencies will increase. Countries whose domestic currencies have been sold off all have large-scale foreign currency-settled debts. If their currencies depreciate, they will have to spend more of their domestic currencies when repaying their debts.

The outside world predicts that if inflation remains high, it is not ruled out that these countries will continue to raise interest rates. Brazil, Russia, and South Korea have all expressed their views that they will find ways to curb prices.

Banks in Spain, Italy and other countries have provided loans to Turkish companies. Many investors believe that bad debts may cause instability in the financial system. South Korea's large-scale debt is settled in foreign currencies, which may also be negatively affected.