Room rates have quadrupled and rent-a-cars are unavailable. COP28 comes in a big way to Dubai, where the world’s leaders, ministers, movers & shakers are taking centre stage. You would also find the Sequoias, Khosla’s, and Bezos – all there ready to invest. COP28 (Conference of Parties) presents a crucial opportunity to put the world on a more sustainable path.
It is therefore no surprise that the IMF has insisted that Pakistan’s next budget must adapt to climate change demands. And it is not long before the majority of Pakistani production buyers will require compliance with an extensive checklist of SDGs (Sustainable Development Goals), which stakeholders will need to adopt on a fast-track basis. If they want to compete, this should start now.
US investors betting interest rates have peaked
In the US, Investors are betting higher that the Fed will soon start cutting interest rates – a bet that went into overdrive last week and ignited the strongest rally in bonds in 40 years, taking yields to just below the 4% mark. The Dollar Index also retreated marginally.
This rally is ignited by PCE (personal consumption expenditures price index) clocking in at 3% in October from a year ago, according to data released on Thursday, falling from 3.4% the previous month. This index is widely seen as the Federal Reserve’s preferred gauge of inflation, and although the reading was still above the Fed’s 2% target, the trajectory is lower.
Interest rate expectations in Pakistan
Two of the developments have put the brakes on a much-anticipated policy rate cut:
1. Rising SPI & CPI, primarily due to revisions in gas tariffs
2. A pushback by bond traders wanting higher yields.
Inflation is widely expected to fall in the Jan-Mar quarter but it’s too early to say where the policy rate will land in the next MPC. But surely a dovish stance by the Fed will help in justifying a rate cut here.
Currency outlook
Last week, we opined that FX will be range-bound but subject to news flow. Thus, Rupee marginally strengthened, even though the two factors cited for its strength were quite immaterial, which are:
1. Reserves rose by US$90mn
2. The trade deficit shrunk by 33% on a YoY basis. In the trade deficit area, the lion’s share was the reduction in imports & not the increase in exports, which is quite disappointing.
Continuing the news flow trend, the market widely expects the IMF BoD to approve the 2nd tranche on Thursday. Though the amount is a mere $700mn, it could drive USDPKR to the 280-282 level, at which level, the Central Bank will resume dollar buying to bolster its reserves.
As with the Climate change initiative, there is a lot the stakeholders (GoP, Regulators, Businesses) need to do on reforms and, in general, increase the nation’s productivity levels, if it were to grow at reasonable levels.
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