KARACHI, Sept 24: After losing 19 paisa to a dollar in inter-bank market on Thursday, the rupee recovered 22 paisa on Friday, thanks to State Bank's intervention.
The rupee closed at 59.14 a US dollar on Friday, up 22 paisa or about 0.4 per cent from 59.36 on Thursday as the central bank sold a couple of millions of dollars to lift the local currency.
Senior bankers say that by lifting the rupee from 59.36 to 59.14 a dollar, the central bank has lent credence to the view that it would defend the rupee between 59.20-59.40 for sometime.
The SBP long defended the rupee at 59 a dollar but finally let it fall below this level on Monday and allowed it to remain there in the following days, signalling to the market that it would now defend the local currency at a new level.
The rupee has been under pressure on rising demand for foreign exchange by importers and scant supply by exporters amidst heavy dollar buying by the banks that were running their net open positions short to supplement SBP's efforts to avoid volatility in exchange rates.
As the rupee slipped below psychologically important level of 59 a dollar on Monday, it slowed the realisation of export proceeds and sped up importers' led buying of dollars. That created a vicious circle thereby pushing the rupee further down.
But opinions are divided on whether a big gain of 22 paisa in the rupee value on Friday would accelerate realisation of export proceeds and whether importers would delay forward buying in the hope of the rupee rising further.
Senior bankers say whereas the Friday's fast recovery of the rupee would discourage some exporters from holding back export proceeds, others who fear further devaluation in the rupee value, after a temporary recovery, would still be tempted to hold these proceeds till the eleventh hour.
Similarly, the importers who have taken the view that the local currency is destined to further devaluation due to soaring world oil prices and higher demand for import of oil and machinery in the growing economy, would continue to buy forward dollars in a big way.
The price of US light crude that had touched an all time high of $49.40 per barrel on August 20 was quoted closer to this level, at $49 a barrel, on September 23. At end-June 2004 the price of US light crude was $30 a barrel.
This big increase of about 60 per cent in New York reference oil price has accordingly raised the prices of all categories of crude oil, including the ones that Pakistan imports.
Such a phenomenal increase in oil prices is bound to push up Pakistan's trade deficit from $3.2 billion in the last fiscal year ending in June 2004 to not less than $4.2 billion this year, if the oil prices do not fall substantially.
That serves as a big indicator for those who believe that the rupee will have to shed further value in the coming days. So far during this fiscal year, i.e. between July 1 and September 24, 2004, the rupee has lost 101 paisa or 1.7 per cent of its value against the dollar. In the last fiscal year it had lost only half a per cent of its value to the US unit.
DISCOUNTING: The State Bank is keeping the inter-bank rupee liquidity extremely tight to avoid further hit on the exchange rates. On Friday, banks made the fifth straight discounting.