The state of affairs of the country’s volatile currency market is all but dubious as the spiraling rupee continued Tuesday its upward rally against the US dollar amid claims that the central bank has succumbed to pressure exerted on the federal government by “vested interests” to contain further appreciation of the local currency.
The strengthening of the local currency helped the country’s largest sentiments-driven stocks market maintain Monday’s all-time high status with KSE 100-share index gaining 132.76 points to close at record 27,309.02 points.
The day saw the State Bank of Pakistan (SBP) notifying Rs 99.9521 as the interbank exchange rate for Wednesday (today) while the dollar changed hands at Rs 99.75 on the open market. According to currency dealers, the interbank and open market exchange rates stood at Rs 99.98 and Rs 99.90, respectively, till lunch time Tuesday.
The stakeholders like importers and money exchangers have welcomed this dramatic rupee appreciation claiming, however, that a group of vested interests, led by banks, was pressuring the federal government and the central bank to contain the current rally.
To this effect, according to well-placed sources, the SBP for last couple of days had been mopping up millions of dollars from the open market to appease such vested interests who want the current upward rally of the rupee on the pretext that the same would destroy the country’s exports.
“The State Bank, on the behest of exporters, has been buying dollars from the free market. Otherwise the dollar would have come down to Rs 98 level,” the sources confided to Pakistan Today.
SBP spokesman Umar Siddiqui, however, replied in negative when approached. “I have no idea about any such development,” the spokesman said. The foreign exchange reserves of the State Bank, Umar added, were already improving on account of different bilateral and multilateral inflows the country would be receiving in the days to come.
The central bank last Thursday reported its dollar reserves to have inched up by $ 50 million to $3.921 billion during the week that ended on Feb 28. Finance Minister Dar is reported to have said the country’s dollar holdings would swell up to $ 10 billion by the end of this month. This claim, if materialised, would further weaken the greenback against the rupee.
“The current exchange rate is not artificial. Rather, a banks cartel backed by some influential politicians has been conspiring to make the rupee depreciate to a record level,” claimed Malik Bostan, president Exchange Companies Association of Pakistan (ECAP).
The money exchanger went on to claim that recently Finance Minister Ishaq Dar had convened a meeting in Islamabad of the bank executives in which the latter were warned against committing irregularities to influence the exchange rate in their favor. “The State Bank then started checking their NOP (net open position) to keep an eye on them,” he claimed.
Also, Bostan claimed gold importers have been trying to manipulate the exchange rate. “Against 266 kilograms of monthly gold imports in 2012 at least 500 kilograms gold was imported in a single day during July 2013,” the ECAP chief claimed.
The bankers, rejecting the impression outright, point a finger at the “speculators” who, they believe, have been calling the shots to manipulate the exchange rate. “The banks are not capable enough to manipulate the exchange rate. They operate in the limits defined by the State Bank,” contented former finance minister and a seasoned banker Shaukat Tarin. “This is the speculators’ game who are sitting outside the banks,” Tarin told Pakistan Today.
Current trend on money market, Tarin said made the profit-crazy speculators go for panic selling of the US currency they were holding. “This improved the dollar’s supply and you see the result,” the former finance minister said.
This improved supply of dollar almost doubled the daily turnover on the open market during the past three to four days. “The daily volume on the market rose from $ 15-$20 million to $ 25-$35 million. It is a phenomenal increase,” said Bostan.
The ECAP president believes that if not interrupted by the under-pressure government the current rally would take the rupee-dollar parity to Rs 80 level within a month time.
Asked if he deemed a strong rupee as beneficial for the ailing economy, Tarin replied in affirmative warning, however, that the value of the local currency must go in tandem with the country’s Real Effective Exchange Rate (REER). “The exchange rate must not be the enforced one rather it should be compatible to the Real Effective Exchange Rate,” the former finance minister viewed.
The SBP website shows that the provisional REER stood at Rs 98.5724 in December 2013.
Meanwhile, the country’s largest bourse also responded positively to the favoring rupee-dollar parity and hit against the all-time high of 27,309.02 points.
Ahsen Mehanti, a senior equity analyst and director at Arif Habib Corporation, said the stocks sustained rally to close at all time high partially on the back of strong rupee-dollar parity that, the analyst said, impacted the investors’ sentiments.
Topline analyst Samar Iqbal also attributed the “strengthening Pak Rupee” as one of the major determinants for Tuesday’s record closing of the index.
