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KARACHI, Aug 21: The rupee gained three paisa per US dollar in the inter-bank market during the week ending on August 21 rising to 58.76 a dollar from 58.79.
In the week ending on August 13 (August 14 being the holiday on account of Independence Day) the rupee had recovered nine paisa against the dollar. Thus the local currency made a total recovery of 12 paisa or 0.2 per cent in two weeks. But so far this fiscal year the rupee has lost 64 paisa or 1.1 per cent of its value against the US unit coming down to 58.76 on August 21 from 58.12 at end-June 2004.
Senior bankers say the State Bank had to sell tens of millions of dollars in the market to stabilize the rupee in last two weeks but they cannot quantify the amount. They say that the local unit may remain stable for another couple of weeks as banks continue to get huge inflow of workers remittances or money sent back home by overseas Pakistanis. Bankers say these remittances that rose 10 per cent year-on-year to $330 million in July may easily cross $300 million in August as well.
But as the trade deficit that stood at $189 million in July is likely to rise this month on the back of higher oil prices a $300 million plus remittances may not lend much strength to the rupee.
"Much depends on how the bankers and businesses perceive the situation," says treasurer of a local bank. "In the early part of this month the rupee fell drastically primarily because importers had made heavy forward dollar buying anticipating that the local currency would weaken."
INTER-BANK RATES: During the week ending on August 21 Karachi inter-bank offered rates or KIBOR also showed a rising trend. Benchmark six-month KIBOR rose by 11 basis points to 3.34 per cent. So far during this fiscal year six-month KIBOR has risen by 37 basis points. (At end-June it was quoted at 2.97 per cent).
The increase in KIBOR reflects the upward adjustments made in the treasury bills yields. The weighted average yield on six- month treasury bills rose by 45 basis points in July and by 10 basis points in August to reach 2.62 per cent. The last increase of 10 basis points made during the week ending on August 21 was partly the result of a higher than targeted sale of T- bills by the central bank. So it created a temporary liquidity shortage in the market and forced banks to borrow Rs10.5 billion from the SBP discount window in two days.
The SBP is increasing the T-bills yield to fight inflation and it may continue with gradual hiking of the yield in September as well as in the next quarter. That is bound to push up interest rates - the first sign of which would show up in upward movement of KIBOR. That would inevitably increase the cost of borrowing of the trade and the industry as many banks are now pricing their loans using KIBOR as a benchmark. Even otherwise a gradual hiking of T-bills yield would impact on overall interest rate structure and lending rates of the banks that touched historic lows during the last fiscal year would also climb up.
At the end of June weighted average lending rate of all banks combined was at 5.05 per cent. July 2004 data is yet to be out.
