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KARACHI, Nov 14: The US dollar has depreciated by 2.5 per cent against the rupee in the inter-bank market since July on higher dollar selling by exporters, larger inflow of home remittances and faster conversion of foreign currency deposits into rupees.
Bankers said the rupee on Thursday gained further grounds in the inter-bank market where it closed at 58.56/58.57 to a dollar up six paisa from the Wednesday close of 58.62/58.63. This is the second straight gain the rupee has recorded due to higher inflows of foreign exchange. On Wednesday also the local unit had gained 10 paisa against the dollar sending signals to the exporters that it is time for selling their future export earnings in advance.
“The exporters did pick up this signal on Thursday and many of them made heavy forward selling,” said treasurer of a big foreign bank.
Exporters confirm this. “It is true that we are selling future export proceeds much faster than in the past,” said a former vice chairman of All Pakistan Textile Mills Association Mushtaq Vohra.
“Local cotton prices are so high...and other inputs are also becoming dearer...so the textile exporters are rather forced to sell their future export proceeds to raise rupee funds,” he said.
“Besides it seems prudent to do so because the rupee may gain further grounds in the absence of substantial demand for dollars by the importers,” he said when reached by Dawn over telephone.
Textile exports account for more than 60 per cent of the total exports of Pakistan. So faster selling of future export proceeds by textile exporters makes a huge impact on the exchange rates.
Bankers say the exporters are so desperate in forward selling of dollars that the forward premiums on all tenures have fallen sharply. They say that the six-month premium that stood at 100 paisa over the spot price of the dollar until Wednesday fell to 85 paisa on Thursday.
Bankers say the upward march of the rupee shows that the State Bank has set a new level to defend the dollar. They say that on Wednesday and Thursday the SBP watched the fall of the dollar in silence. Since the start of the new fiscal year on July 1 the US unit has depreciated by about 2.5 per cent against the rupee on higher inflow of foreign exchange mainly through home remittances or money sent back home by overseas Pakistanis. In July/September home remittances more than tripled to $927 million from $264 million a year before.
Figures for remittances in October are due to pour forth in a couple of days but bankers say higher flows continue.
LOW FCY RATE: Another thing that has increased the supply of foreign currency in the inter-bank market thus making the rupee dearer is that people are converting foreign currency deposits into rupee deposits.
Bankers say after a half per cent cut in the Fed discount rate earlier this month banks have drastically slashed return on the foreign currency deposits. They say most banks that were paying 0.5-1.0 per cent average return on FCY deposits before the rate- cut are now offering 0.25-0.5 per cent only. “Obviously people are not comfortable with this thing and are converting their foreign currency holdings into rupees,” said treasurer of a foreign bank.
Figures support his statement. At end-September the stock of fresh foreign currency deposits with the banks stood at $2.32 billion which has now come down to $2.18 billion. That is within one and a half months people have converted $140 million worth of these deposits. Bankers say the bulk of conversion has been made by businessmen including exporters and local and multinational companies.
KERB MARKET: The trend seen in the inter-bank market mirrored in the kerb market as well where the rupee gained 10 paisa against the dollar on Thursday. Forex Association of Pakistan said the rupee closed at 58.30/ 58.40 a dollar for spot buying and selling against the previous close of 58.40/58.50. On Wednesday also the rupee had gained 10 paisa vs dollar in the kerb market.
Since July 1 the dollar has so far depreciated by three per cent against the local currency in the kerb market.
