KARACHI, Aug 26: The US dollar shed 22 paisa against the rupee in the inter-bank market as exporters went for heavy discounting of export bills: They did this on the advice of their bankers who had got wind of the government decision to minimise the hidden subsidy on exports by letting the dollar lose some extra weight.

Senior bankers said the dollar closed at Rs 59.31/Rs 59.33 for ready buying and selling against the weekend close of Rs 59.53/ Rs 59.55. They said that the US unit had touched the intra-day low at Rs 59.28 adding that a foreign bank had sold some dollars at this rate. The dollar has shed 72 paisa or 1.2 percent of its value vis a vis the rupee in the inter-bank market since July this year.

They said the banks that had surplus foreign exchange started selling dollars as soon as the market opened as they anticipated that the SBP would no longer defend the greenback at the present level. “Bankers also spread word in the exporters community that they foresee an immediate decline in the dollar value in the days to come,” said treasurer of a state-run bank.

“The exporters who too were anticipating it began to discount the export bills in a big way—and soon the US currency was on the slide.” Exporters confirmed this adding that they foresaw further fall in the dollar value.

“When the dollar starts falling the exporters naturally go for big discounting of export bills,” said a leading textile exporter Iqbal Ibrahim. Discounting of export bills effectively means selling export proceeds in advance. This does have a real impact on the ready counter as well for the banks that buy dollars from the exporters in forward also have to sell in ready to manage forex cashflow.

Sources close to the ministry finance say that the government wants to let the dollar fall gradually for morale boosting of the nation amidst growing tension on Pakistan-India border and for getting political mileage before elections.

They say another reason for letting the dollar decline is that the IMF wants Pakistan to minimise the hidden subsidy that it is giving to exporters by keeping the dollar artificially strong.

Senior bankers said the inter-bank market on Monday received sufficient inflow of foreign exchange through home remittances —or the money sent back home by overseas Pakistanis. “Then there was some inflow in the shape of portfolio investment,” said treasurer of a private local bank—referring to the last week’s bullish run in the stock market that sent the KSE-100 index to a five month high. Stock brokers confirm presence of foreign buyers in the market last week but they cannot quantify foreign buying of Pakistani stocks as these are compiled on monthly basis.

Senior bankers estimated at least $60-$80 million net inflow of foreign exchange in the inter-bank market on Monday adding that quite a number of banks sold the dollars aggressively. They said even the central bank was in the market meaning that it did buy dollars from the banks—but could not specify the amount.

No senior SBP official was available to say whether the fall of the dollar was a one-day phenomenon or the central bank has decided to defend the dollar at a new level. But Finance Minister Shaukat Aziz and SBP Governor Dr. Ishrat Husain have been saying that the rupee has strengthened due to prudent foreign exchange management despite the fact that SBP has been buying greenbacks from banks to keep it stable for the exporters. The exporters do realise that the government may now allow a gradual fall in the dollar value.

“If they want to bring the dollar down to Rs 58 or so there is little in it that can be challenged...but the government should lower the electricity charges as oil price have come down,” says Iqbal Ibrahim. “That is essential to help us cut our costs. How on earth we can compete with the world if the cost of production remains so high?” Iqbal Ibrahim is one of those export leaders who believe that the government can also go for further easing of monetary policy to enable the businesses to lower their cost of financial input. “They can do this now as the rupee is stable and inflow is low.”

KERB MARKET: The dollar also shed 25 paisa against the dollar in the kerb market on Monday mirroring the trend that prevailed in the inter-bank market. The Forex Association of Pakistan said the dollar closed at Rs 59.25/Rs 59.35 for spot buying/selling against the weekend close of Rs 59.50/Rs 59.60.