DECEMBER 15 marked the end of the week for inter-bank foreign exchange market because of holidays on December 16 and 17 on account of Muharram. The rupee shed just five paisa to a dollar between December 11 and 15 and closed at 85.81 per dollar.

Some senior bankers contacted by Dawn said the rupee-dollar parity would not swing too much in coming weeks. But, they said, the ongoing buying of foreign exchange by the State Bank of Pakistan from inter-bank market ahead of end-December quarterly debt payments could weaken the local currency, they added. External sector data released during last week presented a mixed outlook for exchange rates. Handsome growth in exports and home remittances remained in sight in November in line with the trend set at the beginning of this fiscal year. Declining trend in foreign investment continued but the rate of decline was less steep last month.

Trade deficit during November grew more rapidly than in previous months mainly because of expansion in imports of defence and floods-related items and increase in global fuel oil prices.

According to latest statistics, exports during July-November this year grew 19 per cent to $8.95 billion whereas imports went up 21 per cent to $15.38 billion. Home remittances of $4.43 billion during this period were up 15.5 per cent over the year-ago period. There was a huge trade deficit of $6.43 billion.

Bankers often link inflows of home remittances, which are steadier than those of foreign investment, to trade deficit to form a realistic view on short-term exchange rate movements.

Bankers also keep an eye on foreign investment inflows to develop a mid-term view of exchange rates and in so doing, they take into account the trend of external debt payments and outward remittances of profits and dividends of multinationals.

Overall foreign investment (including both foreign direct investment and portfolio investment), declined more than 28 per cent to about $746 million during July-November this year. “This really is a disturbing factor. Our trade deficit is expanding for obvious reasons. But a strong growth in remittances along with improved inflow of foreign investment should have provided us enough cushion (against external sector vulnerability),” said treasurer of a foreign bank.

“Now we hope for a pick-up in foreign investment in the second half of the fiscal year after the inflows through incorporation of a Chinese bank branch in Pakistan and also due to anticipated initiation of some foreign investment projects signed in earlier months with the US, China, Turkey and other countries. So our exchange rate outlook is not that bad in short to medium term,” he said.

He and some other top bankers reached by Dawn said they believe that Pakistan would be able to secure at least one of the last two tranches of the IMF standby loan early next month—despite its failure in introducing reformed general sales tax on time which was a pre-condition of the IMF programme.

Pakistan is expected to request the IMF anytime during this month for extending the programme beyond December 31—the first deadline of expiry. The programme has an inbuilt provision of extension up to November 2011.

Benchmark KIBOR of almost all tenures remained stable during the week ending December 15 as the State Bank managed liquidity levels through its open market operations. The government also sold Rs118 billion worth of treasury bills during the week at a nominal increase of one to three basis points in their yields.

Overwhelming participation in auction of three-month bills was witnessed because, according to senior bankers, banks were unsure of interest rates movements in longer tenures and also because lately some top corporates have been investing in T-bills of three months. With an increase of three basis points the yield on three-month bills rose to 13.19 per cent—far higher than the rates of return on bank accounts of much longer tenures.