October 29, 2001	Monday	Shaba'an 11, 1422

WHETHER or not the current strength of the rupee is fuelled by rumours or perceptions of basic changes in the future economic outlook is hard to pinpoint at this formative stage but the phenomenon of the rising rupee against the major currencies, notably the US dollar, is there.

Since Sept 11, the rupee has become expensive against the dollar,leading to costlier exports but less payments of interest on foreign credit lines,its total impact on the economy may be negative in the final analysis, financial experts claim.

It is also difficult to predict whether the current change of roles between the rupee and the dollar is temporary or permanent,having some relevance to the Afghan war and reports of flooding of the kerb markets with the cheaper dollar from various sources and an unprecedented demand for the rupee by the unspecified sources.

But never before in the financial history of Pakistan the spread between the inter-bank and kerb market rates has dipped into the negative column or quoted about at par from over Rs2.50 to over 3.00 since the last decade.

The US dollar, which has assumed the role of the safest and the surest mode of quick appreciation gains for the moneyed people has now become virtually a liability as the inter-market buying and selling operations do not even meet cost.

Those who have purchased dollar preceding to and post-Sept 11 events at Rs67.00 amid predictions that the dollar may not be available at Rs70.00 are now worried and could not precisely decide what to do to their holdings and where to invest.

The current turnaround in stocks reflects that that they are major beneficiaries of the current standoff on the dollar front.

Earlier, in the week the rupee was quoted at Rs61.57 in the inter-bank trading and Rs61.45 and 61.55 in kerb for buying and selling respectively, showing a modest wedge between the two.

The worst-hit may be the operators of hundi business as the removal of the spread between the two rates may finally lead to the closure of their flourishing unofficial mode of dollar transfers.

“ In war-like conditions like the prevailing one investors generally seek safe havens in the currency markets and that is measured by the prevailing spread between the open and inter-bank market rates but there is none at least for the near-term”, says a leading currency analyst at a leading brokerage house.

How much money has outflow from the local kerb markets in the recent past is pretty difficult to indicate in exact numbers but money changers claim the figure is massive and runs into billion of rupees.

Who is the panic buyer of the Pakistani rupee instead of the widely-known safe medium of the US dollar and why is he after it? The scramble for the rupee has upset all the decades-old financial scales as the flood-gate of the dollar through private sources were opened and just in few weeks the rupee became more expensive as compared to the world’s most stable currency.

“ Whether or not the massive amounts of rupee after exchanging it with dollars spent to win over the tribal localities within Afghanistan to break the Taliban unity have worked well is still not clear”, says a money changer adding, “but there is no pause as far as the demand for the rupee on the open market is concerned as it continues to outflow in massive quantities”. But on the home front exporters are worried over this development as exports already hit by the Afghan war are becoming more expensive.There is danger of losing some traditional markets for value-added products as our immediate competitors have become more competitive.

“The appreciation of the rupee against the dollar could prove a double-edged problem in the months to come,hitting the exports needing boost but lowering the value of imports and partial relief on foreign debt repayments”, financial experts say.

The current stabilisation phase in the value of the rupee started with the new fiscal year after the central bank decided to normalise the money transfers through hundi.Panic inflows of dollar followed from overseas Pakistanis fearing an official ban on hundi transfers and that flooded the market with cheaper dollar and expensive rupee.

But rumoured massive buying of the rupee by US agents to inject it into Afghanistan to win over support there was claimed to be the chief reason behind the rupee’s appreciation, most currency dealers claim.