July 17, 2002	Wednesday	Jamadi-ul-Awwal 6, 1423

KARACHI, July 16: The euro — the single currency of 12 European nations — flew past Rs60 on Tuesday after attaining parity with the US dollar in the international currency markets on Monday.

Senior bankers said the euro closed at Rs60.06/Rs60.08 for ready buying and selling in inter-bank market at the close of formal trading hours at 1:30 p.m. But later on it rose as high as Rs60.60 on the back of growing strength in the international market. It could not be learnt whether the banks here struck any deals at this level.

Against this the dollar closed at Rs59.67/Rs59.69 for ready buying and selling in the inter-bank market. So the euro had an edge of 39 paisa over the dollar in term of rupees, reflecting its victory against the once-mighty greenback in the world markets.

Quoting mid-day London exchange rates senior bankers said the euro had risen to $1.0147, up from $1.0125 earlier in the day.

Earlier on Monday, the single European currency had rocketed past parity with the US dollar due to rising concern about the US economic prospects amidst recent reports of corporate scams.

KERB MARKET: As in the inter-bank market the euro also crossed the Rs60 barrier in the open currency market here on Tuesday, mirroring its victory over the US dollar in the international markets on Monday.

The Forex Association of Pakistan — an unregistered caucus of 400 and odds money changers — said the euro closed at Rs59.90/Rs60.10 for spot buying and selling on Tuesday. The exchange rates faxed to newspapers by the FAP showed that the dollar closed at Rs59.60/Rs59.70 for spot buying and selling. In other words the euro was dearer by 40 paisa than the US dollar.

Some leading money changers said the gap between the euro and the dollar was even wider. They said the single European currency was trading at Rs60.20/Rs60.30 towards late afternoon. “At one stage the euro had shot up to Rs60.40 and the dollar was around Rs59.40,” claimed Anwar Jamal of currency brokerage Galaxy International. He said a large number of people sold dollars to buy euros, adding that only one branch of his currency brokerage sold half a million euros on Tuesday, up from 100,000 on normal working days.

SBP RESERVES: The constant rise of the euro against the dollar since April this year has raised some key questions relating to the State Bank reserve management. The very basic question is: Has the SBP added the euro to its basket of reserve currencies — and if not why?

No official word is available on this issue, but bankers close to the SBP say the answer is No. Foreign Exchange adviser of SBP, Zafar Shaikh had told Dawn in January this year that the central bank was waiting for the right time to include euro in the basket of reserve currencies. Since then not much has been heard about this.

Dr Akbar Zaidi, an economist, had remarked while talking to Dawn last week that the central bank should re-evaluate the weightage given to the US dollar in its basket of currencies. Though he was not critical about why the central bank had not put in an X amount of reserve money into euros on the ground that “nobody knew a few months ago that the euro would be rising too high primarily reflecting the weakness of the dollar.” But he held the view that there was certainly an urgent need to diversify the reserve currencies base and to re-evaluate their due weightages.

EXPORTS: The constant rise of the euro against the dollar has benefited the exporters of the eurozone. Since April the euro has gone up by 14 per cent plus against the rupee, promising a higher profit to the eurozone exporters in terms of rupees.

Senior bankers say the benefit the exporters are getting owing to stronger euro and British pound sterling provides enough justification for the SBP decision to stop keeping the US dollar stable at Rs60. But exporters say since 65 per cent of Pakistan exports are billed in dollars and only 35 per cent in other major currencies the rise of the euro and pound cannot offset the loss of the dollar. The US unit depreciated by 6.25 per cent in the fiscal July-June 2001-02 — and in the first 15 days of July 2002 it has shed another half per cent plus.

RATE CUT: “This is where the case for another rate cut becomes stronger,” says a former chairman of SITE Association of Industry, Majyd Aziz. “If the SBP cannot continue its policy of defending the dollar...it can exploit the strength of the rupee for further ease off in the monetary policy,” he says. That eventually will lower export financing rate, which is linked with the benchmark six-month treasury bills rates.

“Whether the SBP does it or not...the point is if the monetary policy is to be eased further it should be eased off right now.”

“Any delay means that the banks will not be able to pass on its benefit to the private sector on time.”