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KARACHI, Aug 4: The rupee on Wednesday fell below 59 a dollar in the inter-bank market on continued forward buying of dollars by mega corporates which was partly speculative in nature.
Senior bankers said the rupee started trading at around 58.90, but soon sank to 59.30-59.40 as industrial importers made heavy forward buying, anticipating that the local currency may further weaken in the future.
They said the State Bank responded swiftly to this volatility in the exchange rates and sold tens of millions of dollars in the market to prop up the rupee. No official word was available on the size of the intervention, but bankers estimated it between $30 and $50 million.
The rupee started moving up then and finally closed at 58.92 a dollar, down 13 paisa against the previous close of 58.79. Bankers said that the rupee was seen trading further high in late afternoon session. Some said they heard of the rupee changing hands at 58.85.
The central bank that lately allowed a gradual decline in the rupee value to benefit exporters not only intervened in the market to lift the rupee, it also issued a public warning to those speculating against the local currency.
SBP chief spokesman Syed Wasimuddin said: "The State Bank is vigilant and constantly monitoring the market. It will continue to manage the volatility in exchange rates and will not allow the speculators to put undue pressure on the rupee."
Sources said SBP high-ups had decided to issue this statement through the spokesman on the basis of the information that mega corporates, including top textile companies, were making heavy forward buying of dollars.
"The high-ups feel that there was an element of speculation in such buyings," one of the sources said. Bankers also confirmed to Dawn that industrial importers, including some of the top 10 textile groups, had made heavy forward dollar buying against firm purchasing contracts instead of letters of credit or LCs.
"Buying against contracts almost always has an element of speculation because it is so difficult to ascertain if the contracts are genuine," commented a banker. He said the forward buying pressure was so intense that six-month forward premium shot up to 48-52 paisa at one time during the day from 34-38 paisa.
Those well-versed with the banking issues say that to avoid further pressure on the rupee, the State Bank should check the misuse of the permission given to the importers to buy forward dollars against contracts.
The SBP can do this by requiring the importers who fail in importing goods within due date against forward dollars bought for this purpose to close out the forward contract with banks.
Bankers said the rupee licked the intra-day low of 58.40 also because some corporates had made panic buying of dollars in anticipating that the dollar might shoot up further on payment of a $100 million dollar-rupee swap instalment by Pak-Arab Refinery Company (Parco). These corporates were ill-informed. Parco agreed to roll over this instalment for three months, thus deferring this payment.
The rupee has lost 48 paisa or over 0.8 per cent of its value within just three days, coming down to 58.92 on Wednesday from 58.42 on weekend. From July till date, it has lost 80 paisa or about 1.4 per cent of its value.
SBP sources say that there are several reasons for this big fall in the rupee value. Some of them are: an expanding trade deficit due to higher-than-targeted growth of the economy as well as soaring world oil prices; the view taken by the market for further fall in rupee; panic created by some banks in the wake of Parco payment; and flight of capital through foreign exchange companies.
They say that the launching of housing schemes in Dubai by business groups based in Pakistan is also draining out foreign exchange from the country. These groups require the prospective investors to pay instalments in the UAE dirham.
A source close to the SBP said the central bank was looking into ways to ensure that these schemes did not become a conduit for capital flight. "We are looking into every aspect, including legal issues. For the time being we cannot say anything on it," a senior SBP official told Dawn.
