KARACHI, June 22: The rupee on Tuesday finally fell below Rs58 against the US dollar on higher demand for dollars due to rising trade deficit and faster external debt payments by the government as well as corporates.

The rupee closed at 58.02 in inter-bank market down from 57.97 a dollar on Monday as a number of banks made heavy dollar buying for their customers. It is for the first time in more than a year that the rupee has fallen below 58 a dollar level. The rupee had last traded below 58 a dollar mark in March 2003.

The local currency weakened recently on increased demand for dollars due to widening trade deficit and faster external debt payments by the government as well as corporates.

The rupee has lost 55 paisa or nearly one percent of its value against the dollar in less than two months coming down to 58.02 on June 22 from 57.47 on April 30, 2004. But in the first three quarters of this fiscal year it had rather gained 34 paisa or about 0.6 per cent value against the dollar rising to 57.47 on April 30, 2004 from 57.81 on June 30, 2003.

In the April-June 2004 quarter the local currency showed some weakness as trade deficit widened dramatically. In April Pakistan saw a trade deficit of $419 million with its imports at $1.515 billion and exports at $1.096 billion.

In May the deficit widened further to reach $669 million with imports at $1.729 billion and exports at 1.060 billion. Thus the cumulative trade deficit of April-May 2004 totalled $1.088 billion - exceeding foreign direct investment of $903 million in eleven months to May 2004.

This did weaken the local currency. What else put an extra pressure on it was that large corporates taking clue from prepayment of $1.17 billion external debt by the government in early 2004 opted to retire their own debt before time.

Senior bankers say the rupee may fall further in coming days simply because inflows of foreign exchange are not sufficient to match outflows. Central bankers also admit that inflows are too small to match outflows of foreign exchange.

So the rupee may have to lose further value against the dollar not only in this month but also in the months ahead. Whereas in less than two months to June 22 the rupee lost 55 paisa to a dollar it showed a smaller cumulative loss against the US unit so far during this fiscal year.

The local currency has lost only 22 paisa or about 0.4 per cent of its value against the greenback since June 30, 2003. Central bankers say the rupee would not show more than half a percentage point loss in its value vis-a-vis the dollar during this fiscal year ending on June 30.

They say the recent rupee depreciation would help exporters remain competitive in world markets. "We must keep our exchange rate competitive with that of India and other regional countries to keep our exporters comfortable," said a senior official of the SBP.

He pointed out that in less than two months the Indian rupee has lost 183 paisa or more than four per cent of its value against the dollar coming down to 46.20 a dollar on June 22 from 44.37 on April 30, 2004.