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KARACHI, Nov 29: The rupee gained 64 paisa or 1.1 per cent against the US dollar in the inter-bank market in October-November as the State Bank changed its support level for the greenback. The rupee rose from 57.87 a dollar on October 1 to 57.23 a dollar on November 25, the last working day of the last month.
Senior bankers say the rupee went up as the SBP made less frequent interventions to mop up excess supply of foreign exchange in the banking system. Central bankers say that the dollar’s decline in the international market in October-November created room for the SBP to let it shed some extra weight without hurting Pakistan’s export value.
In the last two months, major international currencies gained substantially against the US dollar. The UK Pound rose from $1.6667 on October 1 to $1.7090 on November 26 and the euro shot up from $1.1708 to $1.1918 during this period. (On November 28, it has hit a lifetime high against the US dollar at $1.2017). The Japanese yen also moved up from 110.6 a dollar on October 1 to 109.11 a dollar on November 26.
In July-September this year, the State Bank had kept the dollar stable in continuation of its policy to benefit the exporters. The central bank had nursed the dollar in the oxygen tent also in the last fiscal year, ending in June 2003, containing its inevitable fall against the rupee to only 3.7 per cent. Throughout the last fiscal year, the SBP had made frequent dollar buying from banks, more than a billion dollar in every quarter, to keep the US unit stable.
FUTURE OUTLOOK: Senior bankers say the prospects for the dollar falling further in the local inter-bank market have become clearer after it hit a lifetime low at 1.2017 against the euro.
They say that this has made it easier for the SBP to allow the greenback to shed a few more paisas against the rupee when the markets reopen after Eid holidays on Monday.
Sources close to SBP say the way the central bank has allowed a gradual decline in the dollar’s value against the rupee in October-November suggests that it would now defend the US unit at Rs57 in December. Central bankers make no comment on this issue but they do not mince words in admitting that the SBP $ down 1.1pc against rupee in Oct-Nov has now set a different support level for the US dollar. “One should not be surprised if the dollar sheds a few paisa more and the SBP does not come to support it in December,” said a senior central banker who declined to be named.
At its last quoted price of Rs57.23 in the inter-bank market, the US dollar was heavily overvalued, say the central bankers. But they make it clear that the SBP cannot afford to let it find its real market price in one-go “because exchange rate volatility would hit the exports.”
They say that the SBP would, instead, prefer a gradual decline in the dollar’s value implying that in the next month the central bank would not come to rescue the dollar if it went down on excess inflow of foreign exchange.
Overall flow of foreign exchange through workers’ remittances and foreign investment has fallen 5.3 per cent and 63 per cent respectively in the first four months of this fiscal year but still total supply of foreign exchange is in excess of the market requirements.
Bankers, however, point out that the demand for foreign exchange would start rising when Pakistan starts pre-payment of $1 billion plus expensive external loans. SBP sources say the pre-payment is due to start next month or at best from January 2004.
