The central bank’s measures to support the rupee seem to have failed so far in restricting sharp fall in rupee value against world’s leading currencies in the local currency market.

The rupee sharp slide versus the dollar and euro persisted throughout the week due to deepening economic crisis and sharply falling foreign exchange reserves. Pakistan is facing a balance of payments crisis, inflation running at close to 30 per cent and heavy government borrowing from the central bank to cover a budget deficit. The government urgently needs $3 billion to $4 billion to reverse the present economic crisis. Due to the discouraging economic indicators, foreign investors are still reluctant to invest in Pakistan.

The country has failed to attract foreign investment due to the poor law and order situation and negative economic indicators. Net foreign investment has decline by 10 per cent during the first quarter of the current fiscal year 2009, while the current account deficit has widened by 74 per cent to $ 3.9 billion in the first quarter of the current fiscal year mainly due to slow foreign inflows and rising imports. Principal factors responsible for the widening of current account deficit include a widening trade deficit, which surged by 84 per cent to 4.366 billion dollars during the first quarter of FY09.

Rising current account deficit is a major challenge for the economic managers and high current deficit could cast further negative impact on foreign exchange reserves and the economy. Meanwhile, the State Bank latest weekly data reveals that the country’s foreign exchange reserves plunged by $571.9 million to $7.7 billion this week, just sufficient to meet less than two months import needs. Though overseas remittances jumped 25 per cent in the July-September quarter, it has failed to release tight dollar supplies. As a result, sharp losses in rupee value persisted against the dollar and euro in the inter bank and open market this week. The rupee has lost 26.7 per cent against the dollar since the beginning of the year.

Trading activity was slow in the local currency market on the opening day of this week as a result of international market closure. However, the rupee in the inter bank market commenced the week on a negative note, shedding 22 paisa over the previous weekend’s level of Rs79.15 and Rs79.20 to trade against the dollar at Rs79.37 and Rs79.42 on October 13. Mounting dollar demand kept the rupee under downward pressure on the second trading day, when the rupee lost 48 paisa in single day trading and traded at Rs79.85 and Rs79.90 against the dollar.

On October 15, dollar supply in the market was tight. The rupee broke Rs80 barrier in the inter bank market after it lost 85 paisa on the buying counter and another 90 paisa on the selling counter despite reported intervention by the central bank. At the close of the day, the dollar was trading at Rs80.70 and Rs80.80. The rupee further weakened on October 16 touching Rs82 barrier on strong dollar demand. The dollar traded at Rs81.90 and Rs82.00 after the rupee suffered sharp losses to the extent of 120 paisa in the inter bank market during the day.

On October 17, the rupee weakened to a record low and crossed Rs84 mark in early trading session on reports that forex reserves fell by $570 million. Short dollar supplies led further rupee depreciation versus the dollar on the inter-bank market. However, it managed to recover some of its early session losses by mid day. Towards the end of the day, the dollar was trading at Rs83.70 and Rs83.90 after the rupee restricted its losses to Rs1.80 on buying counter and further Rs1.90 paisa on the selling counter. During the week in review, the rupee in the inter-bank market lost up to Rs4.70 against the dollar.

In the open market, the rupee firmed up against the dollar on the opening day of the week in review, recovering 30 paisa for buying and 50 paisa for selling amid quiet trading at Rs79.50 and Rs79.80. The rupee had closed last week against the dollar at Rs79.80 and Rs80.30. However, it failed to hold its overnight firmness against the dollar on the second trading day as the rupee/dollar parity underwent a sharp decline of 100 paisa on buying and 170 paisa on selling to trade at Rs80.50 and Rs81.50 due to panic dollar buying on October 14. Sharp depreciation in rupee value against the dollar persisted on the third trading day, when speculative dollar buying forced the rupee to cross Rs84 mark at one point in late trading. At the close of the day, however, the dollar was trading at Rs82.00 and Rs82.30, up 150 paisa on the buying counter and 80 paisa on the selling counter over its overnight levels.

On October 16, the rupee extended its weakness over the dollar, hitting new low at Rs85 in the early trading session due to high demand. Later it managed to recover some losses and traded at Rs82.30 and Rs82.90, down 30 paisa for buying and 60 paisa for selling over the previous day’s close of Rs82 and Rs82.30. The rupee continued its slide on October 17. It shed Rs2.20 for buying and Rs2.60 for selling, changing hands versus the dollar at Rs84.50 and Rs85.50. On cumulative basis this week, the rupee in the open market lost Rs4.70 on buying and Rs5.20 on selling against the US currency this week. Experts now anticipate the rupee to touch historic lows ranging between Rs85 and Rs90 before recovering to Rs80 in the near future.

Versus the European single common currency, the rupee continued to slide on the week’s opening day, losing 20 paisa for buying but it managed to recover Rs1.65 paisa for selling, changing hands at Rs108.70 and Rs108.85. The euro ended last week at Rs108.50 and Rs110.50. The rupee further lost 70 paisa on buying and 75 paisa on selling to trade at Rs109.40 and Rs109.60 on the second trading day. The rupee weakening trend persisted against the euro on the third trading day, when it suffered fresh losses to the extent of Rs2.30 and traded against the euro zone currency at Rs111.70 and Rs111.80.

Another sharp decline was recorded by the rupee on the fourth day, when the euro was seen changing hands at Rs113.05 and at Rs113.20, up 140 paisa against the rupee. The rupee further declined against euro on the fifth trading day, posting fresh losses of Rs1.15 for buying and Rs1.20 for selling to trade at Rs114.20 and Rs114.40 on the week’s closing day. As a result of continuous fall in rupee value, the rupee this week suffered a decline of Rs5.70 on buying and Rs3.90 on selling against the European single common currency during the week in review.

On the international front, the US dollar had its worst day against the euro in three weeks. In late trading, the euro rose to $1.3592, up 1.3 per cent, its best day since September 22, according to Reuters data. The single currency was more than a cent off its session peak but well above weekend’s low of $1.3257, its weakest level since March 2007. The dollar rose 1.1 per cent to 101.76 yen. Sterling had hit session highs of $1.7441, well away from five year lows hit last week around $1.68.

On October 14, the euro climbed to a one-week high of $1.3769 before closing the day at $1.3645, up 0.4 per cent. The US dollar fell 0.1 per cent to 101.89 yen, surrounding earlier gains that had lifted it as high as 103.06 yen. Sterling rose by about 1 percent at $1.7576, having jumped to a session high of $1.7630. On October 15, the euro fell to session lows below $1.3500 against the dollar, down nearly 1 percent on the day. Sterling was up nearly 0.5 percent on the day at $1.7485 - well away from five-year lows seen last week around the $1.68 mark.

On October 16, the dollar had its best day against the yen in seven months in choppy trading, boosted by sharp gains in US stocks. In late trading, the dollar rose two per cent against the low yielding yen to 101.67, its largest one-day gain since March. The euro was down slightly at $1.3445. Sterling held firm against the dollar, still sustained in part by a favourable view of Britain’s bank recapitalisation action even as recent data portrayed deepening domestic economic weakness. Sterling had inched up 0.2 per cent to $1.7202, staying away from last week’s five-year low around the $1.68 mark.

At the close of the week on October 17, the dollar was steady against the yen at 101.51 yen after rebounding as high as 101.84 from an earlier low of 101.12 yen on trading platform EBS. The euro edged up 0.4 percent to $1.3505, staying above a 1-1/2 year low of around $1.3257 hit a week ago. The dollar had gained broadly in the last few months, partly because nervous investors shifted funds to highly liquid dollar instruments as the global financial crisis intensified. The yen, perceived as a safe haven, had also gained when the crisis intensified. Sterling remained well above a 5-year low against the dollar hit last week as investors perceived the UK government has taken major strides in stemming a banking crisis here. The pound was little changed at $1.7294 after sliding as low as $1.7252.