KARACHI, Feb 7: The US dollar on Friday fell below the crucial level of Rs58 in the inter-bank market confirming earlier signals that the State Bank would now support it at a new level.

Senior bankers said they bought and sold the dollar as low as Rs57.97 down 15 paisa from the previous level of Rs 58.12. But they said the greenback had regained a few paisa towards the end of the day on some particular foreign exchange outflows.

A source close to the State Bank said the official closing of the dollar was around Rs58 but he said that the SBP highups would not possibly defend the dollar at this level. “The central bank will have to find a new level to support the greenback or more accurately the dollar would now find another level of support but certainly below Rs58,” he said.

More than half a dozen senior local and foreign bankers told Dawn that the fall of the dollar below Rs58 was an indication that the SBP had decided to let it find another support level. These bankers differ in working out the next possible support level for the greenback but most of them believe that it may find the first support at Rs57.80.

“Why Rs57.80 why not this or why not that?” was the counter- question posed by Foreign Exchange Advisor of the State Bank Zafar M. Shaikh when asked to comment on the bankers estimates.

“The market continues to determine the exchange rates purely on the basis of demand and supply,” he claimed. He said the US unit had fallen below Rs58 on Friday due to huge inflows of home remittances. “There were excessive inflows due to Eid-ul Azha and the rupee gained accordingly,” he said when reached by Dawn.

Since the beginning of this fiscal year in July last the US unit has so far shed 3.4 per cent of its value against the rupee —thanks largely to increased inflow of home remittances or the money sent in foreign currency by overseas Pakistanis. These remittances more than doubled to about $2.15 billion in July/ December 2002 from $982 million in July/December 2001.

Senior bankers say the fiscal year may close with remittances totalling well over $4 billion.

“It is this continuous inflow of remittances that makes the tills of the banks overflowing with foreign exchange thereby weakening the value of the dollar,” said a senior local banker. That is why the State Bank has been defending the greenback by purchasing excessive inflow of foreign exchange from the banks. This is being done to avoid volatility in exchange rates and to keep the exporters competitive in the world markets.

Senior SBP officials say the purchase of the dollars from the market should not be seen as a direct move to benefit the exporters or just to keep the dollar stable. “But it should be seen in the light of the fact that as the lender of the last resort we are supposed to provide rupee liquidity to the banks and dollar buying is one way of doing this,” said a senior central banker who declined to be named. He was obviously referring to the fact that huge inflows of home remittances leave the banks short of rupee liquidity and they turn to SBP to generate rupees by selling the dollars. “If they come to sell dollars to us there is no reason why we should stop them?” remarked the SBP official. The SBP purchased $2.9bn from the banks in six months to Dec 2002.