KARACHI, Oct 20: The rupee on Wednesday lost 36 paisa and sank to a new 34-month low of 60.58 a US dollar in inter-bank market on continued oil import payment plus repatriation abroad of dividends by a private power company.

Bankers said the rupee closed at 60.58 a dollar, down 36 paisa or 0.6 per cent from Tuesday's close of 60.22, on strong demand for dollars. Banks paid an oil import bill of more than $15 million of a refinery and they also repatriated abroad a little higher amount on behalf of Hubco or Hub Power Company.

A Hubco official said funds were repatriated to make dividend payments to overseas shareholders of the company but he said he could not quantify the amount.

The rupee has lost 80 paisa or 1.3 per cent value during three working days on higher dollar demand from all sectors. It lost 20 paisa to a dollar on Monday and 24 paisa on Tuesday. Since the start of this fiscal year in July, it has lost 4.2 per cent value against the dollar.

BANKS ARE SHORT: The rupee that had already lost 1.9 per cent value against the dollar in July-September chiefly due to an unusually large trade deficit, came under increased pressure in October because banks were short of dollars. Treasurers of local and foreign banks say they are holding much lesser amounts of dollars than they are entitled to hold at any working day. "We are doing this on the request of the State Bank because the central bankers think this can ward off pressure on the rupee," said treasurer of a foreign bank. "But little do the SBP people realise that when a number of banks go short at the same time, if any of them starts buying dollars for its clients it creates a sort of panic in the market."

Senior bankers estimate the entire banking system is short of at least $50-60 million. "If you keep the market short by such a big amount even a $20 million buying on a given day is bound to fuel pro-dollar sentiments and weaken the rupee," said treasurer of a local bank. He said lately the central bank has stopped asking the banks to keep their net open position short of their prescribed limits but "the backlog is so huge that the rupee may remain under pressure until such time when the banks cover their short positions."

BARE FACTS: The rupee has been on the fall chiefly due to a big rise in imports bill on the back of two-decade high international oil prices and growing imports into Pakistan of plant and machinery, aircraft, fertilizers and food items including wheat. Besides, the pre-payment of a $350 million Japanese loan by Pak-Arab Refinery Company or Parco and regular debt payments of the government as well as of the private sector have also had a telling impact on the health of the local currency. Trade deficit in July-September 2004 rose to $839 million from only $144 million a year ago.

IMPORTERS' VIEW: Senior bankers say one of the reasons for a sharp fall in the rupee value is that importers are making huge forward buying of dollars in anticipation of further weakening of the rupee. "But I don't think importers can make heavy forward buying right now because forward premiums are too high," says Mr Tariq Saeed, a former chairman of the Federation of Pakistan Chambers of Commerce & Industry, and himself a tyres' importer.

"I think that the recent fall in the rupee value is rooted more in the dollar demand from the people going to perform Umrah," he said. Bankers also count this as one of the several reasons for the fall in the rupee value. A large number of Pakistanis visit Saudi Arabia to perform Umrah every year during Ramazan and they buy dollars both from the banks as well as from the open market for this purpose.

EXPORTERS VIEW: Another oft-repeated reason for the fall in the rupee value is that exporters are holding back their export proceeds to the maximum permissible limits to get exchange rate benefits. But exporters deny this. "Hardly 10 per cent of exporters may be doing this," says Riaz Ahmed Tata, president of the FPCCI and himself a textile exporter. "Ninety per cent exporters cannot afford to hold back export proceeds because they need cash to pay bills for imported and locally supplied raw materials," Mr Tata said. He said the rupee has been falling not because exporters were delaying sale of export proceeds but chiefly because outflows of foreign exchange are larger than the inflows. "The trade deficit is going up due to increased oil prices and multinationals are repatriating profits and dividends abroad. That is enough to weaken the rupee (at a time when inflows are not very high)." When asked as to what extent the weakening of the rupee would benefit exporters he said: "The fall in the rupee value so far is not big enough even to cover the losses we suffered due to a sharp cut in duty drawback rates in the last fiscal year. Besides, the recent fall in cotton prices is bound to lower the unit price of textiles exports."

Since July, the rupee has lost 4.2 per cent value against the US dollar. "But we saw a 6-7 per cent cut in duty drawback rates on various items including those of textiles in the last fiscal," says Mr Tata trying to belittle the impact of the rupee depreciation.