KARACHI, Aug 28: State Bank may increase interventions in the inter-bank market next month if the rupee shows signs of weakness because there is no urgent need to depreciate the rupee further.
In July-August the central bank sold dollars very frequently in the market to stabilize the local currency. Bankers close to the State Bank estimate total dollar selling in these two months at more than half a billion dollars. Some SBP officials say that the actual amount is even higher but they do not disclose it.
A central banker told Dawn that the rupee would likely remain stable next month adding that SBP would make rapid interventions if the local currency shows signs of weakness. Bankers say a $100 million payment due by Pak-Arab Refinery Co or Parco to a consortium of banks in third instalment of a $350 million dollar-rupee swap may weaken the rupee in September. But SBP officials say this would have no major impact on the dollar-rupee parity.
In August the central bank had to convince Parco to defer payment of $100 million due to the consortium of banks in second instalment to avoid volatility in exchange rates. It is not clear if the central bank would make another such request to Parco or it would simply allow the company to make $100 million payment.
"If the company is allowed to make the payment which is very much likely this time then the rupee may fall slightly," said a dealer at a foreign bank.
"Even otherwise there will be increased pressure on the local currency due to higher imports than in August particularly due to inflated world oil prices."
Officials in oil import companies also say that there monthly import bill in September would be higher than that of August but they cannot quantify the increase. The prices of oil for August- September 2004 deliveries surged to 14-year high in the backdrop of political crisis in Iraq and increased demand of oil in China and India.
Trade deficit that stood at $189 million in July 2004 is thus expected to swell in August and in September thereby keeping the rupee under pressure. The rupee lost 30 paisa or half a per cent value against the US dollar in July and so far during this month it has lost 25 paisa to a dollar.
The rupee fell to 58.42 a US dollar at end-July from 58.12 at end-June. Up to August 27 it lost 25 paisa more to close at 58.67 a dollar.
In July the Indian rupee lost 47 paisa or one per cent value falling to 46.45 a dollar at the end of the month from 45.98 at the end of June. But between August 1-27 it gained 14 paisa and rose to 46.31 a dollar.
Sources close to SBP say Pakistan would not let the rupee fall rapidly at a time when the Indian rupee is moving up because that would create problems for Pakistani exporters majority of whom compete with their peers in India.
"This is one logic for keeping the rupee to remain stable," one of the sources said.
"Even otherwise as the rupee has already lost 55 paisa (or one per cent value against the dollar so far during this fiscal year) it may be kept stable at least during this quarter." But top bankers say that to allow the rupee to retain its present value against the dollar till September-end the State Bank will have to make aggressively selling of dollars next month. The SBP seems set to do that.
