During the week under review, the rupee shed 28 paisa to a dollar, falling to 60.79 a US unit on May 18 from 60.51 on May 11.

Between May 1-18, the rupee suffered a net loss of 14 paisa or a little over 0.2 per cent to a dollar which brings its cumulative losses so far this fiscal year to one per cent.

Bankers close to SBP say the central bank is allowing a modest depreciation in the rupee value to benefit exporters before the close of the fiscal year. Exporters can make the most of this depreciation as it coincides with an appreciation in the Indian rupee. Between May1-18 the Indian rupee gained 119 paisa or three per cent, rising to 40.90 a dollar on May 18 from 41.29 on April 30.

Unlike in the past when the SBP was defending the rupee at 60.60 a dollar level, bankers reckon that it is now letting it slip below the barrier. They say the SBP even made some dollar buying during the week under review to deliberately weaken the local currency.

SBP never confirms details of its intervention in the inter-bank market and its officials claim it intervenes only to smooth out volatility in exchange rates.

The rupee weakened for other reasons as well: Foreign capital flew out of the stock market after May 12 killings and subsequent worsening of law and order in Karachi. Net foreign inflow under Special Convertible Rupee Accounts in this month fell to $62.5 million on May 16 from $102 million on May 11.

Consequently, cumulative inflows so far this fiscal year fell to $784 million on May 16 from $823.6 million on May 11. This fall occurred also because Malaysia withdrew $33 million investment that it had made in long-term Pakistan Investment Bonds.

During the week ending on May 12, Pakistan’s foreign exchange reserves stood at $13.78 billion, latest data released by the SBP show.

Of this $11.6 billion belonged to SBP whereas banks held $2.18 billion. This shows a modest build up of $650 million so far during this fiscal year: At the close of the last year, the reserves stood at $13.13 billion.

In ten months to April, remittances from expatriate Pakistanis swelled 22.6 per cent to $4.45 billion. The government says full fiscal year inflow might reach $5.5 billion. Last year Pakistan had received $4.6 billion in this account.

This much increase in the remittances looks impressive but it is just in line with the trend in the region. Remittances from overseas Bangladeshis, for example, rose 23.1 per cent to $3.47 billion in nine months to March 2007.

Earlier this month, Pakistan High Commission in the UK launched a campaign urging Pakistanis there to send more foreign exchange back home. Similar campaigns if launched in other parts of the world—and made a success, might ensure sustainable growth in workers’ remittances. The inflow of these remittances in April 2007 alone shot up 28 per cent to $513 million from $401 million in April 2006.

Meanwhile, the latest monetary data show that up to May 5, the government had borrowed Rs196 billion from the banking system for budgetary support. To bring it down to the targeted level of Rs120 billion at the close of the fiscal year on June 30 requires a strict fiscal discipline. “And that is not in sight,” said a source close to the Ministry of Finance. But an encouraging news is that the government borrowing from the SBP (up to May 5) has fallen to Rs32 billion from Rs57 billion a year-ago.

If this borrowing remains low, it would certainly help in reining in inflation. In July-April this fiscal year CPI inflation rose at an average rate of 7.9 per cent. But SPI inflation which can rightly be termed as the inflation for the poor accelerated 9.7 per cent during this period.

And even food inflation, which is a major component of overall CPI inflation, rose 10.2 per cent. This brings into question the government claims of fighting inflation with full force. Full year inflation seems heading towards 7.5 per cent against the target of 6.5 per cent.

The private sector’s borrowing from the banking system fell 25 per cent to Rs273 billion, up to May 5, from Rs363.5 billion in a year ago period. President of Karachi Chamber of Commerce & Industry was blunt in explaining this decline: “In the past the businesses used part of their borrowing from banks to invest in the real estate and in stocks, this trend has weakened now.”

He also identified a general decline in industrial activity and less appetite for loans in the textile sector as other key reasons for a fall in private sector credit. Aziz and other business leaders say that private sector’s borrowing would remain below Rs300 billion this fiscal year against the target of Rs390 billion. — Mohiuddin Aazim