KARACHI, Sept 30: The US dollar shed 92 paisa or 1.5 per cent of its value against the rupee in the inter-bank market in July -September this year.
On Monday (September 30) the US currency finished trading at Rs59.11/Rs59.13 for ready buying/selling down from Rs60.03/ Rs 60.05 on the last working day of June 2002.
It is an open secret that the State Bank continued defending the dollar in July-September as in the past to keep exporters competitive in the world markets. So there is no two opinions on the fact that despite a 1.5 per cent fall in its value in past three months the dollar is still over-valued.
“The SBP has let the dollar fall by 1.5 per cent in the past three months as part of its policy to avoid too much distortion in the exchange rates,” said a source close to the central bank.
He said opinions were divided on how fast the dollar might be allowed to find its real worth: Some believe that the SBP should give only limited support to the dollar for the benefit of the exporters meaning that the US unit should be allowed to trade at quasi-real values. From their viewpoint the appreciation in the rupee value is more important for debt-laden Pakistan whose exports also rely heavily on imported raw materials. “If the rupee is allowed to strengthen further and this affects the exporters adversely—sooner or later they have to learn to deal with market forces,” one of them pointed out.
But others feel that the level of support to the dollar should be enough to keep the exporters competitive in the world markets for that is a long-term solution of foreign exchange crisis. They are of the view that subsidising exports through artificially fortified dollar is also a must in the backdrop of rising fuel and energy charges plus still-high financial cost of production.
In fiscal year July/June 2001/02 the dollar had depreciated by 6.25 per cent against the rupee in the inter-bank market. But that depreciation had also left the US unit over-valued for the simple reason that the central bank had constantly defended it for the exporters. The SBP support to the dollar had come—and is still coming—through purchase of excessive inflow of foreign exchange from the inter-bank market. Senior bankers close to SBP say that the central bank purchased no less than $3 billion in the last fiscal year from both the inter-bank as well as open currency market. They say that in the first three months of this fiscal year (i.e. July-September 2002) the SBP has purchased more than $700 million from the inter-bank market alone.
The dramatic increase in the forex inflow into Pakistan in the wake of 9/11 raised gross forex reserves of the country from $3.2 billion at end-June 2001 to $6.3 billion at end-June 2002. Right now the reserves total around $8.2 billion.
KERB MARKET: In the kerb market the US dollar lost about 110 or 1.8 per cent of its value in July-September this year. The US unit fell to around Rs59.10/Rs59.15 on September 30 down from Rs60.20/Rs60.25 on the last working day of June.
The dollar fell primarily because increased inflow of foreign exchange into the banking system eliminated the gap between the official and kerb market exchange rates thus making investment in dollar a waste of money and time. “We have seen de-dollarization taking place during all this time,” said Anwar Jamal of Galaxy International money brokerage. “Nobody is there to buy dollars. Both investors as well as ordinary people have shifted the focus from dollar to euro as well as on the stock market.”
The most immediate reason for the gloom on the dollar counters of money brokerage houses has been that the State Bank stopped dollar buying from the open market since July 2002.