KARACHI, June 30: The rupee lost 31 paisa or a little more than 0.5 per cent of its value against the US dollar in the inter-bank market in 2003-04. The local currency fell from 57.81 a dollar on June 30, 2003 to 58.12 on June 30, 2004.

The rupee lost seven paisa to a dollar in the first quarter of this fiscal year falling to 57.88 at end-September 2003. But it gained 37 paisa or more than 0.6 per cent of value during the first half of the fiscal year ending in December 2003.

In the next quarter it shed seven paisa. This brought its total gain against the dollar in nine months to March 2004 to 30 paisa or a little more than 0.5 per cent of value.

But the local currency failed to maintain its upward march in the final quarter of this fiscal year, though it showed a nominal gain of four paisa at end of April compared with its end-March value.

In May it lost 22 paisa to close at 57.69 a dollar but even at this level it showed a gain of 12 paisa or 0.2 per cent value against the dollar over its June 2003 parity of 57.81 a dollar.

The actual erosion in the rupee value took place in June when it shed 43 paisa against the dollar or more than 0.7 per cent of its value against the dollar. But as the rupee had gained 12 paisa in eleven months to May, the fall in its value in the entire fiscal year was limited to 30 paisa (See Chart).

What weakened the rupee in the last quarter of this fiscal year was a large trade deficit and amidst an increased demand for dollars by the government as well as the corporate sector for making year-end outward remittances.

Trade deficit in April-May 2004 was more than a billion dollars. In June also the deficit may not be less than half a billion dollars, but official figures are yet to pour in.

This estimated trade deficit of $1.5 billion in the last quarter of this fiscal year is equal to total trade deficit in the first three quarters. In other words, average monthly trade deficit rose three-fold in the last quarter compared with the average deficit in the first three quarters.

Senior bankers say the rupee may have to shed more of its value against the dollar in the coming months primarily because trade deficit seems set to remain high and the government is determined to pre-pay more of its external debt ahead of schedule.

In the beginning of 2004 the government retired $1.17 billion expensive loans of the Asian Development Bank-seven years ahead of schedule. The government is set to pre-pay at least $400 million worth of external loans also in the first two quarters of 2004-05.

Further, the market is yet to feel the exchange rate impact of the pre-payment of $387 million by Pak-Arab Refinery Company in external debt and penalty to the Japan Bank for International Cooperation or JBIC.

Parco made this payment this month by borrowing dollars from local banks rather than making outright purchases. The company would return the dollars to the banks in four monthly instalments between July-October 2004.

The State Bank in its quarterly report for 2003-04, released on Monday, has also indicated that the rupee may weaken in the next fiscal year because the external account deficit seems set to worsen.

But it has made it clear that any adjustment in the dollar-rupee parity would be gradual. In the first ten months of this fiscal year, Pakistan saw a net decline of $911 million in its overall balance of payment compared with a $4 billion surplus in the same period of the last fiscal year.