The rupee kept its historic downward journey against the dollar Wednesday on the back of ‘natural demand’ created by the Haj pilgrims. This negative trend in rupee-dollar parity also reflected on the Karachi stocks market which closed bearish at 22,930.06 points losing 136.44 points.
According to currency dealers, at least 1.5 million Haj pilgrims have thronged both the open and interbank markets to acquire dollars, the international currency.
The day saw the rupee plunging to a historic low of Rs 106.30 on the open and Rs 106.80 on the interbank market against the US currency. The central bank Wednesday notified the interbank exchange rate for Thursday at Rs 106.1269.
The official and unofficial commentators tend to attribute this record depreciation to a widened gap in a ‘natural demand’ and supply of the greenback, specially on the kerb market.
“The dollar is trading at lifetime high on almost daily basis,” said Malik Bostan, chairman Exchange Companies Association of Pakistan (ECAP).
This, he said, was because of the pressure created by the Haj pilgrims needing dollars to travel to Saudi Arabia to perform the ritual. A State Bank spokesman also confirmed that the issue pertained to the supply and demand. He tended to agree that the Haj factor might be a possible reason for the dollar’s historic rise.
The dollar, having already appreciated to Rs 105 level due primarily to the country’s poor foreign exchange reserves shot up with the start of Haj flights to the Kingdom.
“The Hajis have added some $750 million to the demand on local currency markets,” the ECAP chief said.
On free market the demand for dollar is ranging between $20 million to $25 million per day. The buyers influx into the open market is partly because of the higher exchange rates the commercial banks are charging the Hajis with. According to money dealers, the banks are issuing traveller cheques at Rs 108 to the pilgrims. “The banks are taking from Hajis 2 percent insurance charges for the traveller cheques, so they (Hajis) are prioritising the open market,” Bostan said.
Also, the interbank market is under pressure to cater to at least 0.1 million pilgrims’ quota, $ 2000 each, allocated by the government. “This is a natural demand in Haj season,” opined the money exchanger.
The currency experts believe that the rupee would appreciate by two to three rupees as soon as the Haj event spans. “It’s a temporary trend that would reverse after the Haj season,” said an expert. However, the economic observers, led by the International Monetary Fund, foresee further depreciation of the rupee by Rs110 in the months ahead.
They don’t buy the argument that the inflows under IMF’s $6.64 billion EFF would help the local currency regain strength against the greenback. Some, however, are upbeat that an improvement in foreign investment, which the central bank recorded 45 percent higher during July-AugFY14 at $182.5 million against $126 million of FY13, may be a game changer in the months to come. The benchmark index at Karachi Stock Exchange too reacted negatively to the weakening rupee and slid by 136 points. The KSE 30 and All Share indices set in the red zone by losing 184 and 80 points, respectively, on Wednesday.
Coupled with factors like profit taking, rising CPI inflation, SBP’s policy rate hike and post budget implications on listed sector, the falling rupee adversely impacted the market sentiments on the day. “Falling rupee-dollar parity, tough economic reforms targets set by IMF, limited foreign interest and uncertainty in global stocks and commodities played a catalyst role in bearish sentiments,” said Ahsen Mehanti, a director at Arif Habib Corporation.
This, he said, was despite record earning announcements in cement sector and institutional support in banking stocks on rising spreads after the SBP’s surprise move on raising policy rate on Sep13.
Rupee nosedives to record low of Rs 107
