They said if the huge current account deficit trend persists in future; the exchange rate regime would see a serious deterioration and local currency would to pay heavy cost of it. - File photo

KARACHI: Despite relatively stable exchange rate over the past few weeks the forward cover premium has persistently been increasing.

The high forward cover rates reflect the nervousness of importers as they don't trust the recent prevailing calm in the currency market, though the Pak rupee is losing slowly, bit by bit each day against the greenback.

Importers get assurance of availability of dollar after certain period of time from banks for which they pay premium called as forward cover rate.

"The forward cover rates have been high for the last three days," said Atif Ahmed, a currency dealer in the Inter-Bank market. On Friday, the 6-month forward cover rate was Rs94.49 (spot rate Rs90.45+Rs4.04 premium).

He said the forward cover rate never came down despite appreciation of local currency against the US dollar. The premium for six-month remained around Rs4 or above. The premium as forward cover was Rs8.25 for one year.

During December and January, the Pak rupee depreciated fast against the dollar. The local currency witnessed a value erosion of 4.5 per cent during the two months.

The State Bank also made effort to bring down the forward cover rate by putting pressure on market to service only genuine importers and avoid booking dollars for the sake of manipulating the exchange rate.

However, the market sentiments did not change despite dollars lost substantially against the Pak rupee and rate reversed to Rs89 from Rs91. The high forward cover rates were signaling the existence of weakness within the local currency.

"The fears of importers were real. The dollar once again started gaining and now reached Rs90.45," said Atif adding that official effort for the recovery of rupee has failed.

The interior minister Rahman Malik had announced that the rupee would gain and the rate would be Rs87 per dollar. He was of the view that dollar price was artificially manipulated and that the currency was being smuggled also.

Few money changers were arrested for doing illegal business and some of them were booked for illegal transactions 'Hundi.' (Hundi system of currency transactions is banned).

Bankers dealing in currencies said exchange rate may get some strength if Pakistan receives Coalition Support Fund (CSF) from the United States.

A senior banker said the government has hinted that NATO supplies could be restored in coming weeks. He assumed that restoration of supply could resume the CSF for Pakistan that would help to improve the foreign exchange reserves of the country.

The banker said this possible CSF fund will help the local currency to gain and minimise the elements of speculation in this business.

However, it was observed that the currency dealers have watchful eyes on rising current account deficit which was more than $1 billion alone in a single month of December.

They said if this huge deficit trend persists in future; the exchange rate regime would see a serious deterioration and local currency would to pay heavy cost of it.