THE CIA has bought a lot of rupees. Panicky Pakistani exporters hoarding dollars and expecting that the rupee will continue to depreciate finally began off-loading their dollars. The SBP did not buy dollars, as it usually does, at the most recent quarter end.
Consequently, there was an over-supply of dollars both in the open market and the inter-bank market. The rupee, as a result, appreciated by a wholesome 7 per cent in the open market while it gained more than 2 per cent in the inter-bank market.
On September 11, the rupee-dollar parity stood at Rs67 to a dollar. On September 13, Colin Powell spoke with President Musharraf and then Wendy Chamberlin, the US ambassador in Islamabad, also called on the president. Our General reportedly offered his “full cooperation.” On September 14, President Musharraf and Pakistan’s top military commanders remained locked in talks on how to respond to US demands.” On September 15, Secretary Powell thanked the “president and the people of Pakistan for the support that they have offered and their willingness to assist us in whatever might be required in that part of the world.”
Late Saturday, September 15, President Bush talked to President Musharraf appreciating “Pakistan for the firm support and cooperation extended to the US government in its fight against terrorism.” Crown Prince Abdullah also called President Musharraf.
For at least 10 working days following the September 11 tragedy, the open-market rupee moved in a rather close range reaching a high of Rs66.90 and a low of Rs67.35 (Karachi kerb).
Beginning September 27, a huge demand for Pakistani rupees first surfaced in Dubai and then reached our shores the following day. The aggregate demand for rupees in Pakistan and in Dubai, according to reliable sources, hovered around a colossal Rs3 billion.
If someone is buying rupees they need to get things done either within Pakistan or in Afghanistan (rupee is to the Afghanis what the dollar has been to us). Coincidentally, a lot of the jihadi leaders are not being as vocal as they were expected to be under the situation. The Americans also need to pacify tribal elders bordering Afghanistan and then create a split within the ruling Taliban.
According to The Observer, “there are up to 3,000 tones of opium in secret bunkers” in and around Jalalabad, Darunta, Bhesud and Khost in Afghanistan which could be used to extract some 300 tones of heroin, the equivalent of what the British consume in 10 years (nearly 90 per cent of the heroin sold in Britain comes from Afghanistan). There have been intelligence reports that “American and British troops are to target a $20 billion stockpile of opium and heroin. A whole lot of this drug trade is liquidating their stockpile in expectation of an attack (some sources at the UN claim that the price has come down from $700 a kilograms to $90 per kilograms). Dollars thus received are also being converted into rupees to be used in the war effort. That’s an added source of dollars.
How high would the rupee go? The Arabian Sea is littered with warships and our export orders are being cancelled. In the short to medium term, the inter-bank market appears to be in equilibrium. Over the longer term, the rupee would come under pressure once again.
In the open market, the forces of supply and demand remain uncertain. If the Afghan operation stalls then there would be an added demand for rupees. By the end of the month, most passes within Afghanistan will be covered with a few feet of snow and the American action would come to a halt. The rupee can, therefore, have a good time while the action lasts.