KARACHI, Dec 22: As tension mounts up on Pakistan-India border the State Bank has heightened its watch on exchange rates fearing that the rupee might come under attack.

“We have asked bankers to be extra cautious,” said an official of the State Bank who refused to be named. “We know that the war hysteria created by the Indian media could turn importers panicky and the rupee may come under attack.”

Senior bankers confirmed to Dawn that they had got an informal wake-up call from Exchange & Debt Management Department of SBP on speculative attacks on the rupee. They said they got the call as exporters stopped selling export proceeds in the morning when the dollar opened at Rs60.65 — the level seen on Thursday. “They were holding dollars anticipating that it might rise on importers-led demand,” said treasurer of a big bank.

“But as importers did not turn up for speculative buying the exporters had to sell dollars cheaper.”

The greenback started falling and it settled around Rs60.20/ Rs60.25 for ready buying and selling. Some deals were reported even at Rs60.15.

“We did not inject a single dollar (into the market),” said a central banker when asked had SBP made any move to encourage the exporters to sell their export proceeds.

But he said “the SBP did

what it could have done to change the sentiment” implying that it used its influence on banks to see that the dollar does not rise further.

Sources close to SBP say the central bank could not have done more meaning that it could not have sold dollars into the market. Under the terms of the IMF standby arrangement that Pakistan utilized between December 2000-September 2001 the State Bank has stopped making direct interventions to shore up the rupee: It is now managing the exchange rate through its monetary policy.

A source close to the Ministry of Finance said the government is fully aware that weakening Pakistan’s foreign exchange regime is one of strategic objectives of India.

New Delhi has withdrawn its envoy from Islamabad and amassed troops and military hardware along Pakistan’s border in what is being seen as a prelude to third war between the two arch rivals.

This time New Delhi has accused Pakistan of masterminding the attack on its parliament on December 13. Islamabad has denied the charge.

“India cannot stomach a jump in our foreign exchange reserves and stability in exchange rates,” said the source. (Pakistan’s foreign exchange reserves now stand at $4.6 billion up from $3.2 billion at the end of last fiscal year. Its currency has also appreciated by more than four per cent against the dollar in the first half of this fiscal year: In fiscal 2000-01 the rupee had rather depreciated by 18.60 per cent.)

These signs of Pakistan getting stronger disturb India. “So it is possible that the Indian vested interest here may do things to destabilize the rupee,” said the source.

Seen in this perspective the fall of the dollar in the inter- bank market from Rs60.65/60.70 on Friday to Rs60.20/60.25 on Saturday becomes quite significant.

“This 45 paisa increase in the rupee value should have a big psychological impact on the market,” said treasurer of a state- run bank.

KERB MARKET: Top money changers said the mounting tension on Pakistan-India border led to some speculative buying of dollars in the morning: the dollar rose to Rs61.40 for selling on Saturday from Rs60.95 on Friday. “But the gradual fall of the dollar in the inter-bank market had an immediate impact on the kerb market,” said head of a currency brokerage located on I.I. Chundrigar Road. Finally the dollar closed at Rs60.80/Rs61.00 for spot buying and selling in the kerb.