THE rupee fell from 86.51 at end October to 87.77 a dollar on November 25 losing about one and a half per cent of its value against the greenback in less than a month.

“Importers pounced on both spot and forward dollars during this month,” said treasurer of a local bank. “They feared that the rupee may not remain stable when imports are growing fast, exports sliding, foreign investment drying up and the SBP does not have enough forex reserves to intervene in the market on a regular basis.”

Inflows of home remittances were strong in October and the country received slightly over a billion dollars. But executives of banks and exchange companies say the market believes that remittances alone were not sufficient to block the rupee slide.

“When you see that both current account and balance of payments are in deficit, the local currency is always the first victim,” remarked a senior executive of one of the top local banks. He said that toward the end of October the SBP had made a huge intervention in the market to lift the rupee but sentiments were so biased against the local currency that “it did not work for more than a few days.”

An owner of a large foreign exchange company said inflows of home remittances were expected to remain above a billion dollar mark also in November because tens of thousands of Pakistanis had repatriated foreign exchange back home just before the Eid-ul-Azha, which fell on November 7.

However he informed that the central bank was encouraging forex companies to cut deals with similar companies of banks for joint operations in handling of home remittances to avail the same benefits that are available to banks—and this is slowing down exclusive inflows of remittances through exchange companies.

“Banks are banks and exchange companies are exchange companies. These companies are designed and run exclusively for permissible transfer of funds from abroad,” asserted an official of Exchange Companies of Pakistan.

“If they are not allowed to flourish on their own those overseas Pakistanis who feel convenient in sending remittances back home from these companies would switch over to Hawala. That would, in fact, decelerate the inflow of remittances rather than accelerating them as some officials in the SBP think.”

Central bankers say the reason to encourage dedicated exchange companies to operate jointly with the exchange companies owned by banks is that this would ensure greater transparency in their operations and curb illegal inflow of money from abroad as well as capital flight.

They also say that central bank’s intervention in the forex market is not exclusively designed to lift the rupee, as some stakeholders think. “These are rather aimed at mitigating or smoothening exchange rate volatility,” said a senior SBP official.“Judged from this angle our interventions are always timely and fruitful.”

He said the decline seen in the rupee value in first four months of the current fiscal year (July-October 2011) had emboldened exporters to hold overdue export proceeds in order to gain maximum exchange rates benefit—and that led to a rather steeper fall in the local currency in November. “We hope stability would return soon as exporters have speeded up realisation of overdue export proceeds.”

The rupee has lost more than 2.6 per cent of its value against the dollar between July 1 and November 25 which, according to some central bankers, is not too much to worry about. “Some strong inflows are expected in the second half of the fiscal year (January-June 2011) from the World Bank, the Asian Development Bank and the Islamic Development Bank.

Besides, sizable foreign investment from China as well as from the Middle East is in the pipeline. That, together the continuing rise in remittances would give some comfort to forex reserves and exchange rate even if we don’t seek anything from the IMF,” one of them remarked.

Optimists also point out that by allowing a steeper depreciation in the rupee value in November, the SBP has also tried to apply brakes on growth in imports. “You see, when the rupee comes down making imports costlier, naturally at a given point imports growth is affected,” said treasurer of a large local bank.

“That is what we need, particularly after we have seen a slight drop (of about two per cent) in export earnings of October whereas imports in the same month last year expanded by 13 per cent. We are quite positive about the rupee’s health in December,” he told Dawn, adding that before the end-December external debt servicing, the SBP is expected to intervene in the forex market to cool-off pro-dollar sentiment, which, he said, Be was fanned recently by growing political uncertainty.