KARACHI: Dollar has been gaining against the rupee for the last couple of months despite rising foreign exchange reserves, reflecting weakness of the local currency, mainly due to a weak economic outlook.

Currency experts found no reason for dollar’s gain against the local currency except the weak fundamentals of economy. However, they said the US currency has been gaining against all major currencies for the last three to four months.

Since the last week of December, dollar started rising; though its appreciation against rupee was slow. In less than two months, the local currency lost Rs1.05 against the dollar.

On Dec 23, the dollar was traded at Rs100.55 which proved the lowest price since it started appreciating. According to Forex Association of Pakistan, dollar on Saturday was traded at Rs101.60.

Currency dealers said that there was no panic for dollar in the inter-bank or open markets.

The greenback is easily available, but gradual devaluation might continue for next four to six months.

“The reason could be domestic or global, but it seems that the trend may persist till end of this fiscal year,” said Anwar Jamal, a currency dealer.

The inter-bank market faces no unexpected demand, some currency dealers said the reason for the gradual devaluation could be more foreign than the local.

During the last four months, the dollar appeared as the strongest currency of the world which attracted massive investment, particularly after oil price crash.

Currency watchers said that the dollar gained about 16 per cent against euro, 10pc against British pound and 8 to 10pc against Canadian and Australian currencies in last three to four months.

“It seems the exchange rate would remain stable for another couple of months since there is no reason for appreciation or depreciation,” said Atif Ahmed, a currency dealer in the inter-bank market.

However, experts believe the oil price trend has changed some fundamentals of the exchange rates. If oil price crisis remains there for another one year, dollar would gain more against all currencies since the weak oil prices have hit many developed economies, particularly oil producing countries.

Oil prices have bounced back to some extent this week as it is available at $58 per barrel which is more than $50 per barrel 20 days ago. Oil experts’ forecast status quo in the near future which means the price could fall again.

According a State Bank report, foreign exchange reserves of the country at the end of November were $12.986bn which shot up to $15.238bn on Feb 6.

Experts said reserves have been rising due to borrowed money which has weakness in its structure.

The country is facing current account deficit with record high trade deficit, reflecting the weakness on the external front.

Published in Dawn, February 15th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play