March 25, 2006	Saturday	Safar 24, 1427

KARACHI, March 24: Foreign direct investment reached close to $2 billion during the first eight months of the current fiscal year, while the expected inflow of another $2 billion from other sources suddenly reduced the value of greenback against the rupee on Friday.

Latest official data on Friday showed that the foreign direct investment during July-February reached $1.974 billion. The inflow is 190 per cent higher than the inflow during the corresponding period last year.

Currency dealers said that the subscription of $800 million eurobonds was an encouraging factor for the market but it put pressure on the dollar to reduce some weight.

“Most of the big banks were selling dollars,” said a currency dealer. He said every bank wanted to sell dollars while importers were not in a hurry to book them.

“The greenback lost 7 to 8 paisa against the rupee and it may lose further,” he said. Dealers said the influx of dollars into the market had ensured easy availability of the currency in future.

Dollar was available at Rs60.03 to Rs60.05 on Friday. It was traded at Rs60.12 to Rs60.13 on Thursday. The dealers said that the inflow of $800 million would further strengthen the market.

Market was also expecting an inflow of $1.2 billion following the privatization of Pakistan Telecommunication Corporation Ltd.

“The cumulative impact of inflow of eurobond, PTCL proceeds and higher foreign direct inflow would help stabilize the exchange rate in the county,” said another currency dealer.

The exchange rate has been a crucial issue for the State Bank and the government, but the last two years witnessed stability in the rate and only slight fluctuation was seen most of the time.

Analysts said the increased inflow of dollars helped the country meet its rising dollar demand in the wake of record trade and current account deficits.

A record oil price hike also forced the country to receive costly foreign exchange bills. The State Bank is responsible for the payment of oil bills.

“There is a fear that over $8 billion trade deficit will further hit the exchange rate, but the inflow of eurobond and PTCL proceeds will help minimize this fear,” said an economist at a local bank.

The currency dealer said the inter-bank money market was extremely short of liquidity, which kept most of the banks to avoid dollar buying. The banks that have to maintain five per cent cash reserves with the SBP are looking for liquidity.

Bankers said banks got Rs15.670 billion through the discount window of the SBP, as the market was extremely short of liquidity. The shortage of liquidity pushed the overnight rate to 8.9 per cent, just below the discount rate of nine per cent. “The market was expecting an injection of liquidity but the central bank maintained a status quo,” said the economist.

Analysts said this tight liquidity position was another reason for the depreciation of US dollar as sellers were more in number than buyers. “Selling was also high because of the fear that the greenback may lose after the influx of the currency in the market.”

The open market of foreign currencies remained stable and the price of US dollar remained hovering around Rs60.32 to Rs60.35.