April 10, 2008	Thursday	Rabi-us-Sani 3, 1429

KARACHI, April 9: The overloaded oil bill suppressed the rupee further to lose against the greenback, the currency required to make payments for import of petroleum products.

Currency dealers said that the US dollar gained up to 20 paisa on Wednesday. It had already gained about 16 paisa on Tuesday.

“The record high oil prices have shattered the confidence of the local currency while the demand for the US dollar shot up to meet the market requirement,” said Abid Ali, a currency dealer.

Banking sources said foreign banks had been very active for a couple of days and they were real buyers of the US currency.

Currency dealers said that huge purchase of US dollar by foreign banks was a clear indication that the dollar was being picked up for State Bank.

The SBP is still paying about 70 per cent of oil bills while the rest (30 per cent) are being paid by the private sector.

The SBP had planned to shift the entire load of oil bills to the private sector, but record oil prices in the international market made difficult to act upon its own plan.

Analysts said that the impact of high oil prices in the world market had made a direct impact on the country. The foreign exchange reserves are melting fast and the economy has started receiving a ‘frightening impact’ of the high oil prices in the local market.

Another important development noted by the analysts was the exchange rate difference of the two markets (inter-bank and open market) which widened in a couple of weeks. The open market showed dollar rate at Rs63.70 while the inter-bank rate was Rs63.28.“This widening exchange rate difference should be the real cause of concern for the government as high differential will encourage remittances of foreign exchange through illegal means,” said another currency dealer.

Five years back, most of the remittances were made through Hundi and Hawala systems but country’s high foreign exchange reserves helped stabilise the exchange rate and the open markets failed to offer higher rates. Thus most of the remittances started coming through banking channels.

Pakistan depends heavily on remittances being sent by the overseas Pakistanis which enables the government to meet 40 to 50 per cent of its current account deficit.

The remittances during the last eight months showed an increase of 21 per cent, and last year the country received over $5 billion.

“So far, remittances are coming from the banking channel. However, the situation may change if exchange rate difference widens further,” said Shezad Kaleem, a brokerage house analyst.

The currency dealers and bankers were hopeful that after the formation of federal and provincial governments, things would improve. They expect more inflow of foreign exchange in the form of foreign direct investment.

“The declining US dollar reserves of the country put pressure on rupee’s strength. If the inflows go up, the exchange rate would be stable,” said Shezad.