KARACHI, Sept 20: The State Bank on Monday did not intervene to stop the US dollar from rising past Rs59, sending a strong signal that it would now defend the local currency at a new level.
So far, during this fiscal year starting July 1 the central bank successfully kept the dollar below Rs59. It did allow the rupee to fall gradually but avoided volatility in exchange rates - sometimes at the cost of annoying the banks.
Senior bankers said the dollar closed at Rs59.01 in the inter-bank market on Monday as some banks made dollar buying both for their clients as well as for themselves to cover their short positions.
Treasurers of several local and foreign banks said they received calls from the Exchange & Debt Management Department of the SBP warning them not to go for heavy dollar buying.
But they said the central bank made no significant intervention to stop the dollar from rising past Rs59. Some bankers obviously annoyed over the SBP's informal move to stop them from dollar buying questioned its rationale.
"This seems to be very illogical and meaningless," said the treasurer of a bank referring to what he called frantic calls by the SBP stopping them from buying dollars. "Either they should tell us that the buying we do is not permitted under the rules, or else they should sell enough dollars in the market to keep the dollar from rising past a certain level," said treasurer of a bank.
Senior bankers said though the dollar closed at Rs59.01 around 1:30 p.m., the standard closing time for the day's trade, it was seen changing hands at 59.05 in tomorrow value meaning the deals done at this rate would be settled on Tuesday.
The rise of the dollar beyond Rs59 is significant because it indicates a shift in the SBP policy of keeping the US unit below Rs59. As the dollar rises past the psychologically important barrier of Rs59, bankers say it may now post a few huge gains in the coming days before the rupee claws back part of its lost ground.
They say if the greenback stays beyond Rs59 for some days, and chances are it will, then exporters would start selling export proceeds in a big way, and importers would delay forward dollar buying, thereby blocking further rise in its value - and making the rupee stronger.
"That is what the central bank is also looking for," said a source in SBP but he quickly added that exporters may not wait for further rise in the dollar value to accelerate selling of export proceeds. "Our standing is that they will do this right now," said the source.
He, however, gave no clue about whether the SBP would intervene in the market in the next few days to contain the rise of the dollar. "Well, we'll certainly discourage volatility in exchange rates," he said implying that the central bank may not react aggressively if the dollar inches up in a gradual manner but if it makes too large gains in too little a time then the SBP may intervene.
A large trade deficit of $350 million in July (based on free-on-board value of imports and exports) was a key factor that had led the dollar to rise from Rs58.13 at end-June to Rs58.45 at end-July.
Then a $298 million trade deficit (based on cost, insurance and freight value of imports but fob value of exports) contributed to further rise in the dollar value--to Rs58.76 in the inter-bank market. Thus, in the first two months of this fiscal year, the rupee lost 64 paisa or 1.1pc value against the dollar.
The rupee would have fallen by a higher margin, had the SBP had not sold more than half a billion dollars in the inter-bank market during this period. The central bank did continue dollar selling in September as well, but it made less-frequent and relatively small interventions for a host of reasons. The result is that, the rupee has another 26 paisa or more than 1.4 per cent of its value against the dollar in the first 20 days of this month.
So far, during this fiscal year, the rupee has suffered a cumulative loss of 89 paisa or 1.5 per cent against the dollar. In the last fiscal year (July-June 2003-04) it had shed 31 paisa or more than 0.5 per cent value to the dollar.