PERKED up by the rising export earnings and workers remittances, the rupee hit an 11-month high at 84.22 a dollar during the week ending April 15. This was the second straight week of handsome gains in the rupee value.
“In just two weeks, the rupee has gained 111 paisa or more than 1.3 per cent against the dollar. The demand for greenbacks has weakened because of less-than-usual buying by importers for bulky oil payments amid a dramatic increase in supply,” said treasurer of a foreign bank.
The local currency added 61 paisa to its value against the US unit in the week to April 15 and 50 paisa during the preceding week as bankers witnessed dramatically high inflows of workers remittances and export earnings. Monthly inflow of remittances also crossed a billion dollar mark for the first time in March, up 24.6 per cent from February's.
Bankers said, remittances had surged in recent weeks as Pakistanis in Gulf countries were repatriating back home part of their savings as a caution against political turmoil in the Middle Eastern and North African Arab countries. They said effective curbs on Hundi/Hawala and better servicing by banks and foreign exchange companies handling forex earnings of expatriates also had played a key role in boosting remittances.
Export earnings of around $2.5 billion in March were 15.7 per cent ahead of those in February due in large part to spike in global prices of cotton and food items. Imports, however, grew 11.9 per cent.
“Exporters also offloaded big amounts of forward export proceeds for exchange rate gains. And most importers not only refrained from forward dollar buying but also delayed import payments that had fallen due,” said another bank treasurer.
Another thing that supported the upward drive of the rupee was that for quite some time the State Bank of Pakistan had not been purchasing dollars from banks.
Bankers familiar with SBP activities in forex market revealed that the central bank was also not rolling over previously made rupee-dollar swaps on maturity. In earlier months, the SBP had contracted rupee-dollar swaps to amass greenbacks for reserves building.
“Roll-overs or no roll-overs of such swaps do not directly affect the exchange rates as exchange rate difference between the time a swap is contracted and the time when it matures is already factored in,” a senior banker explained to Dawn. “But yes, when the central bank does not roll over, a swap it had contracted to lift dollars it provides a psychological boost to the rupee.”
But whether the recent decline in reserves would prompt the SBP back to the old practice is a moot point. Forex reserves fell from $17.64 billion as on April 2 to $17.31 billion on April 9. A spokesman for the central bank attributed it to “scheduled debt payments” without elaborating. Bankers said that part of external debt servicing that fall due at quarter-ends is sometimes executed the next week.
Meanwhile, interest continued to show stability during the week to April 15 and benchmark KIBOR of various tenures either remained unchanged or saw a negligible slippage.
Bankers said that with the start of wheat harvesting by farmers and its procurement by state-run agencies, their lending for commodity financing operations is expected to pick up. But they pointed out that repayment of previously made commodity loans still continued to outpace fresh loaning.
They also said with nominal growth seen in December and January in large-scale manufacturing and expansion in exports of textiles, food, pharmaceuticals and other categories, they are also lending more to the private sector. “On top of it, the government borrowings from banks still remains strong though we anticipate it would see a gradual decline in coming months,” commented a senior banker.
The federal government's borrowings from banks went up to Rs343.7 billion in nine months of this fiscal year (up to April 2) from Rs216 billion in the same period of last year. Banks' lending to the private sector, meanwhile, also expanded to Rs210 billion from Rs124 billion.