Most of the rupee’s recent gains look sustainable at least till the end of this fiscal year, and a slight dollar recovery after its humiliating decline is but a result of importers-led buying aimed at benefiting from lower exchange rates, say bankers and forex dealers.

The rupee gained 6.5 per cent against the dollar in just 12 days of March. But in the next two working days, the dollar reclaimed 1.3 per cent of its lost value. After rising to a full one year-high of 98.10 per dollar on March 12, the rupee lost 132-paisa in the next two days and closed at 99.42 a dollar on March 14.

Both the height and the timing of the Pakistani rupee’s appreciation have cheered up exporters, as the Indian rupee too had gained 1.8 per cent against the dollar between February 25 and March 10.

“The initial gains of our rupee in the first week of March accelerated sales of overdue export proceeds, thus creating an even greater supply of dollars in the next week,” recalls the treasurer of a large local bank. “The dollar’s decline was so pointed that top exporters even made big forward selling.”

Bankers say though the rupee got a shot in arm after an inflow of $750 million from Saudi Arabia in March — out of $1.5 billion pledged for the Pakistan Development Fund for FY14 — the stage for its swift recovery was set earlier.

“Three main local banks were rolling over fuel oil import LCs of two big companies right from February. They continued it through the first two weeks of this month,” a source at one of these banks told Dawn. According to some guesstimates, these banks rolled over oil import payments of $750 million or so between February 1 and March 12.

Rolling over of import LCs made these banks long-in-dollar in their forex positions, and they sold dollars in the ready market to square their positions. That created larger supplies of foreign exchange, enabling other banks to buy dollars at cheaper rates.

Increased inflow of exports, foreign direct investment (FDI) and remittances also supported this trend. But the combined impact of all this was not extraordinary at all. The rupee gained just half a per cent against the greenback during February.

“We never knew, however, that we were actually setting the tone for a historical rupee recovery that eventually happened only after an inflow of $750 million from Saudi Arabia,” recalls a senior banker. He says once import LCs rollovers expire and petroleum importing companies start making forex purchases from banks, dollar demand may pick up.

“But no big change is expected even after that,” says the treasurer of a leading local bank. “The dollar already made some recovery on March 13 and 14. This was natural, as the rupee had appreciated amazingly in the previous 12 days.

Banks that were short of dollars covered their position, convinced that the rupee’s upward streak is over. The same was true for importers. This dollar recovery may extend, but eventually the rupee may stabilise around 98-99 per dollar.”

For a majority of bankers, 98-99 per dollar is now an unofficial exchange rate band that they think the central bank would like to see in operation for the next few months.

Finance Minister Ishaq Dar made it clear at a March 12 press conference that the government doesn’t want the SBP to support the rupee through dollar selling interventions any more.

“But for the sake of exchange rate stability, we can always intervene in the market one way or the other, and the recent buildup in forex reserves has created room for it,” says a central banker, insisting that his statement shouldn’t be taken as a clue to any impending intervention.

Dar had informed the media that as he spoke, overall forex reserves had reached $9.52 billion — of which $4.77 billion belonged to the SBP, far higher than $2.84 billion on February 7.

Forex dealers say whereas the SBP’s reserve buildup is partly due to on-off inflows from one or two friendly countries, it is also partly a result of heavy forex buying by the SBP in the first two weeks of March, when the forex market was awash with dollars. Central bankers neither deny nor confirm this.

Officials of the ministry of finance say the rupee may remain stable or even gain more till June due to forex inflows like another $750 million from Saudi Arabia, IMF’s loan tranche of over $500 million, Coalition Support Fund’s payment of over $300 million, and an estimated $1.6 billion from the auctioning of 3G/4G cellular phone spectrum licences.

Besides, growth in permanent sources of forex inflows also signals better times for the rupee, at least in the short term. In eight months of this fiscal year, exports, FDI and remittances have risen by six per cent, 18 per cent and about 11 per cent respectively.

Government officials say export growth will accelerate further, and increase in FDI and remittances will sustain.